If the government fears there may be a shortage of something, they may choose to _________ it.

• A. impose a price ceiling on
• B. impose a price floor on
• C. tax
• D. subsidize

Answer: (B)

Verified step by step guidance

1. Understand the concept of a shortage in microeconomics: a shortage occurs when the quantity demanded exceeds the quantity supplied at a given price.
2. Recall that a price ceiling is a legal maximum price set below the equilibrium price, which can lead to shortages by increasing demand and reducing supply.
3. Recognize that a price floor is a legal minimum price set above the equilibrium price, which can lead to surpluses by decreasing demand and increasing supply.
4. Analyze the government's goal: if they fear a shortage, they want to prevent prices from being too low, so they would impose a price floor to keep prices above a certain level, encouraging suppliers to produce more.
5. Conclude that imposing a price floor helps avoid shortages by ensuring prices do not fall below a level that would discourage production.