Which of the following best defines price maintenance agreements?

• A. A policy where the government purchases surplus goods to maintain market prices.
• B. A contract between buyers and sellers to trade goods illegally at prices above the legal maximum.
• C. An arrangement where a producer sets a minimum price at which retailers can sell its product.
• D. A government-imposed maximum price that can be charged for a good or service.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of price maintenance agreements. These are arrangements related to how prices are controlled or influenced in the market, often involving producers and retailers.
2. Step 2: Identify the key feature of price maintenance agreements: they involve a producer setting a minimum price that retailers must charge for a product, preventing retailers from selling below this price.
3. Step 3: Differentiate price maintenance agreements from other price controls such as government-imposed maximum prices (price ceilings) or government purchases of surplus goods, which are separate concepts.
4. Step 4: Recognize that price maintenance agreements are not about illegal trading above legal maximum prices, but rather about maintaining a minimum resale price to stabilize market conditions.
5. Step 5: Conclude that the best definition of price maintenance agreements is: 'An arrangement where a producer sets a minimum price at which retailers can sell its product.'