Putting a price floor above the current equilibrium price is most likely to result in a:A. change in supply. B. welfare loss. C. decrease in quantity supplied.
A price floor is the lowest price a good can legally be sold for. The quantity supplied will likely increase but supply does not change. If the minimum is above the equilibrium price the quantity demanded and the quantity that is traded will be reduced. This leads to a welfare loss to society compared to the equilibrium without the price floor attached.
The line “The quantity supplied will likely increase but supply does not change” seems contradictory. I understand that quantity demanded would drop due to the increase in price but:
a.) why does supply increase (wouldn’t suppliers know that demand would drop due to the increase?)
b.) I can make sense of “the quantity supplied will likely increase but supply does not change”.
c.) the answer is b but it seems like _ a _ is just as valid a choice. Can someone explain? Thanks! Thanks!
The phrase “a change in the quantity supplied” means that you move to a different point on the supply curve, but the supply curve itself doesn’t move. The phrase “a change is supply” means that the supply curve itself moves.
Here, there is no change in the supply curve, only a change (an increase) in the quantity supplied.
