Question

Identify the negative consequences of establishing a price floor on milk. Correct Answer(s) Sellers will be tempted to engage in illegal activity to recoup some of their costs due to milk that went unsold. There will be a decrease in the quantity of milk demanded. There will be a surplus of milk. Consumers will demand higher-quality milk as they are forced to pay more.

Answer 1

Answer: Statement A, B, C

Explanation:

1. Floor price is always established above equilibrium price, thus most of the consumers will not be able to purchase milk due to high price, leading to low demand. Hence statement B is a negative impact.

2. As the price will be above equilibrium price, suppliers will overproduce resulting in surplus of milk. Hence, statement C is a negative impact.

3. Due to overproduction suppliers may indulge in illegal activities to cope with unsold units. Hence, statement A is a negative impact.