Question

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate purchased by the government compared to the quantity of chocolate purchased by the government when the price floor is first imposed?

1) It will increase.
2) It will decrease.
3) It will decrease or increase depending on the type of chocolate.
4) It will remain the same.

Answer 1

When the federal government places a binding price floor on chocolate and purchases all unsold chocolate to support the price floor, the quantity of chocolate purchased by the government will likely increase over time compared to when the price floor was first imposed.

Step-by-step explanation:

When the federal government places a binding price floor on chocolate and purchases all unsold chocolate to support the price floor, the quantity of chocolate purchased by the government will likely increase over time compared to when the price floor was first imposed. This is because the price floor creates a minimum price for chocolate, which leads to a larger quantity of chocolate supplied. As a result, there will be more chocolate that consumers do not buy, and the government will purchase this excess chocolate.