Suppose the government imposes a price floor of \$10 on a market. Using the table above, what is the most likely effect of this policy?

• A. There will be no effect because the price floor is set below the equilibrium price.
• B. A shortage will occur because the quantity demanded exceeds the quantity supplied at \$10.
• C. The market will reach equilibrium at \$10 with no surplus or shortage.
• D. A surplus will occur because the quantity supplied exceeds the quantity demanded at \$10.

Answer: (D)

Verified step by step guidance

1. Identify the equilibrium price and quantity from the given market data (the table). The equilibrium is where quantity demanded equals quantity supplied.
2. Compare the imposed price floor (\$10) to the equilibrium price. Determine if the price floor is set above or below the equilibrium price.
3. Recall that a price floor set above the equilibrium price is binding and will affect the market, while a price floor below equilibrium has no effect.
4. At the price floor of \$10, use the table to find the quantity demanded and quantity supplied. Note the difference between these two quantities.
5. Since quantity supplied exceeds quantity demanded at \$10, conclude that a surplus will occur because suppliers want to sell more than consumers want to buy at that price.