Final answer:
A price floor on milk will not always lead to a surplus because the market price could exceed the price floor, making it irrelevant. Surpluses occur only when the price floor is effective and keeps the market price above the equilibrium level, leading to excess supply.
The correct answer is option c. the market price of milk will sometimes rise above the price floor, rendering the price floor irrelevant.
Step-by-step explanation:
If the U.S. government sets a price floor on milk, it will not always lead to a surplus because C) the market price of milk will sometimes rise above the price floor, rendering the price floor irrelevant. Price floors are designed to prevent a price from falling below a certain level to protect producers, ensuring they make enough profit to have the incentive to continue producing goods such as milk. However, if the market price naturally stays above the artificial price floor due to high demand or increased costs of production for instance, the price floor will have no effect on the market, and no surplus will occur as a result of it.
When the market price does not exceed the price floor, a surplus occurs because the quantity of milk supplied at the higher price floor exceeds the quantity demanded. In such cases, producers may benefit because they receive a higher price, but consumers might face higher prices and the potential for wasted resources.