Question

In a period of rising​ prices, the LIFO method will result in the lowest ending inventory at the end of the period.

a) True
b) False

Answer 1

Option d, a price floor will have the largest effect if it is set substantially below the equilibrium price.

Step-by-step explanation:

The most accurate statement is option d. A price floor will have the largest effect if it is set substantially below the equilibrium price. A price floor is a government-imposed minimum price that is set above the equilibrium price.

When the price floor is set substantially below the equilibrium price, it has a significant impact on the market. It creates a surplus, where the quantity supplied exceeds the quantity demanded, leading to excess supply. This surplus puts downward pressure on prices and can have a significant effect on reducing market activity.

In a demand and supply diagram, setting the price floor substantially below the equilibrium price would be shown as a horizontal line below the intersection of the demand and supply curves.