Question

Select the correct answer. A price floor will usually shift: a. demand b. supply c. both d. neither Illustrate your answer with a diagram.

Short answer

wed to fall below the set minimum price. This may lead to a surplus of the good or service, as consumers might be less willing to buy at the higher price. However, the demand curve itself remains unchanged. #tag_title# Impact on Supply #tag_content# Similar to demand, the price floor does not directly affect the supply curve either. The supply curve itself remains unchanged, but the imposition of a price floor may lead to an increase in the quantity supplied, as producers are encouraged to produce more due to the artificially higher price. #tag_title# Correct Answer and Diagram #tag_content# Based on the analysis above, the correct answer is: d. neither A price floor does not shift the demand or supply curves directly. Instead, it affects the equilibrium price and quantity in the market. Here's a diagram to illustrate the impact of a price floor: \( \text{Price} \begin{tikzpicture}[baseline=(current bounding box.center)] \draw[->] (0,0) -- (4.5,0) node[right] {Quantity}; \draw[->] (0,0) -- (0,4.5) node[above] {Price}; \draw[thick,blue,shorten >=0.45cm,shorten <=0.45cm] (0,4) -- (4,0) node[right] {Demand}; \draw[thick,red,shorten >=0.45cm,shorten <=0.45cm] (0,0) -- (4,4) node[right] {Supply}; \fill (2,2) circle[radius=0.1]; \draw[dashed] (0,2) node[left] {P1} -- (2,2); \draw[dashed] (2,0) node[below] {Q1} -- (2,2); \fill (1.5,2.5) circle[radius=0.1]; \draw[dashed] (0,2.5) node[left] {Price Floor} -- (1.5,2.5); \draw[dashed] (1.5,0) node[below] {Q2} -- (1.5,2.5); \end{tikzpicture} \) In the diagram, the blue line represents the demand curve, and the red line represents the supply curve. The price floor is set above the initial equilibrium price (P1). As a result, the quantity demanded decreases from Q1 to Q2, while the quantity supplied increases. However, the demand and supply curves themselves do not shift.

Step-by-step solution

Understanding Price Floors

A price floor is a minimum price set by the government or another regulatory authority for a particular good or service. It is usually set above the equilibrium price in order to protect producers (such as farmers or artists) from prices that are too low. To analyze the impact of a price floor, we need to know its effect on demand and supply.

Impact on Demand

A price floor does not directly affect the demand curve. Instead, it affects the equilibrium price and quantity in the market. When a price floor is imposed, the actual market price will not be allo