Which type of government intervention in the market is most likely to result in a surplus of goods and services?

• A. Price ceiling set below the equilibrium price
• B. Price floor set above the equilibrium price
• C. Tax imposed on producers
• D. Subsidy given to consumers

Answer: (B)

Verified step by step guidance

1. Understand the concept of equilibrium price, which is the price at which the quantity demanded equals the quantity supplied in a market.
2. Recall that a price floor is a government-imposed minimum price set above the equilibrium price, which prevents the price from falling to the equilibrium level.
3. Analyze the effect of a price floor set above equilibrium: at this higher price, producers are willing to supply more goods, but consumers demand less, leading to excess supply or a surplus.
4. Contrast this with a price ceiling set below equilibrium, which typically causes a shortage because the price is too low to encourage enough supply.
5. Recognize that taxes on producers and subsidies to consumers affect supply and demand differently, but do not necessarily create a surplus like a price floor above equilibrium does.