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Chapter 3: Problem 29

Does a price floor attempt to make a price higher or lower?

Short Answer

Expert verified
A price floor attempts to make a price higher than what the market would naturally dictate, as it is a government-imposed minimum price set above the market equilibrium price. This ensures that suppliers cannot sell their goods or services for less, protecting them from overly low prices that may cause financial distress.

Step by step solution

01

Define Price Floor

A price floor is a government-imposed minimum price, set above the market equilibrium price, that producers cannot sell their goods or services for less. It is typically implemented to protect suppliers from overly low prices that may cause financial distress.
02

Determine the Effect on Prices

Due to the price floor being set above the market equilibrium price, suppliers cannot sell below that limit. This means that the price must be at least equal to the price floor, making it higher than it would be if left to market forces.
03

Answer the Question

In conclusion, a price floor attempts to make a price higher than what the market would naturally dictate.

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Most popular questions from this chapter

We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?

Name some factors that can cause a shift in the supply curve in markets for goods and services.

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction. a. There have recently been some important cost-saving inventions in the technology for making paint. b. Paint is lasting longer, so that property owners need not repaint as often. c. Because of severe hailstorms, many people need to repaint now. d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?

What is the relationship between total surplus and economic efficiency?
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