Question

Suppose the equilibrium price of a jar of spaghetti sauce is $3, and the government imposes a price floor of $4 per jar. As a result of the price floor, the Use letters in alphabetical order to select options A quantity demanded of spaghetti sauce decreases, and the quantity of spaghetti sauce that firms want to supply increases. B demand curve for spaghetti sauce shifts to the left. C quantity demanded of spaghetti sauce stays the same. D supply curve for spaghetti sauce shifts to the right.

Answer 1

A quantity demanded of spaghetti sauce decreases, and the quantity of spaghetti sauce that firms want to supply increases.

Step-by-step explanation:

A price floor is usually set by a government or an agency of the government. It is the lowest price that can be charged for a good or service. For a price floor to be effective, it should be higher than the equilibrium price.

If the equilibrium price is $3 and the price floor is $4, the quantity demanded falls because spaghetti sauce becomes more expensive. This is according to the law of demand which says the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.

The quantity supplied increases when the price floor is set to $4. This is according to the law of supply which states that the higher the price, the higher the quantity supplied and the lower the price, the lower the quantity supplied.

A price floor leads to a movement along the demand and supply curve and not a shift.

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