Refer to the figure below. If the government set a price floor of \$30, there would be:

• A. a surplus of the good
• B. a shortage of the good
• C. equilibrium in the market
• D. no effect on the market

Answer: (A)

Verified step by step guidance

1. Understand what a price floor is: it is a legally imposed minimum price that sellers can charge for a good or service, set above the equilibrium price to be effective.
2. Identify the equilibrium price and quantity from the figure, where the supply and demand curves intersect. This is the price at which quantity supplied equals quantity demanded.
3. Compare the price floor of \$30 to the equilibrium price. If the price floor is set above the equilibrium price, it will affect the market; if it is below or equal, it will have no effect.
4. At the price floor of \$30, determine the quantity supplied by looking at the supply curve and the quantity demanded by looking at the demand curve at that price.
5. Calculate the difference between quantity supplied and quantity demanded at the price floor. If quantity supplied is greater than quantity demanded, this difference represents a surplus of the good.