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Chapter 4: Q. 4.18 (page 94)

Suppose that in Figure 4-4, the government raises

the floor price of milk above the displayed

\(0.10-per-pound floor price, to \)0.12 per pound.

Will the excess quantity of milk supplied increase

or decrease as a consequence?

Short Answer

Expert verified

Increase.

Step by step solution

01

Step.1 Given information

The price floor is increased from $0.10 to $0.12

02

Step.2 Explanation

As the price floor implies the minimum price charged, which is increased to $0.12 from $0.1, it implies that the good has now become costlier. This will make suppliers supply more, but consumers will demand less.
This clearly will increase the excess supply in the market.

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