Question

A price floor beneath the equilibrium price will decrease consumer surplus, always increase the total revenue firms earn/total expenditure customers make in a market and increase consumer surplus.

A) TRUE
B) FALSE

Answer 1

False.A price floor beneath the equilibrium price will not have any effect on the market, as the equilibrium price is already lower.

Step-by-step explanation:

A price floor is a minimum price set by the government that is above the equilibrium price in a market. It is designed to protect producers by ensuring that they receive a certain level of income. However, a price floor beneath the equilibrium price will not have any effect on the market, as the equilibrium price is already lower. Therefore, the statement is FALSE.

For example, let's say the equilibrium price of a product is $10, but the government sets a price floor of $12. Since the market price is already lower than the price floor, the price floor will not be binding and the market will continue to operate at the equilibrium price of $10.

In this case, a price floor beneath the equilibrium price will not decrease consumer surplus or increase the total revenue firms earn/total expenditure customers make in the market.