Final answer:
A binding price floor set by the federal government will increase the market price of chocolate, which in turn decreases the quantity of chocolate demanded by consumers as they react to higher prices. Producers will increase supply due to higher potential earnings, creating a surplus that the government purchases to manage the price floor.
Step-by-step explanation:
When the federal government places a binding price floor on chocolate, this means that the market price is set above the equilibrium price where supply and demand would naturally meet. Since the price floor is binding, it raises the market price above what many consumers are willing to pay, which leads to a decrease in the quantity of chocolate demanded by consumers. Simple economic principles suggest that as price increases, quantity demanded decreases, assuming all other factors remain constant. On the other hand, the quantity supplied is likely to increase as producers can receive more money for their product; however, due to the reduced consumer demand at the higher price, there is likely a surplus of chocolate. As a result, the government ends up purchasing the excess chocolate that consumers do not buy to maintain the price floor.