Question

Price floors can cause inefficiency because

I. they can cause inefficiently low quality
II. they can cause inefficiently low quantity
III. they can cause inefficient allocation of sales
IV. they can utilize the efficient amount of resources
V. they can lead to wasted resources
A. All of the above
B. I. and II above
C. I, II, IV, and V above
D. II, III, and V above
E. I, III, and V above

Answer 1

Price floors contribute to inefficiencies by causing excess supply, wasted resources, and inefficient allocation of sales, which are options II, III, and V, respectively, making answer choice D (II, III, and V above) the correct one.

Step-by-step explanation:

Price floors can cause inefficiency because they can lead to inefficient outcomes in terms of quantity and allocation of resources. When a price floor is set above the equilibrium price, it can lead to an excess supply or surpluses, resulting in wasted resources.

This imposition prevents the market from reaching its natural equilibrium of price and quantity, thus causing an inefficient allocation of sales and resources. Contrary to creating efficiency, price floors often lead to unintended and inefficient outcomes. Therefore, the correct answer to why price floors can cause inefficiency is II, III, and V, which corresponds to answer choice D: II, III, and V above.