Suppose the equilibrium price of a jar of spaghetti sauce is $3, and the government imposes a price floor of $4 per jar. As a result of the price floor, the

A. demand curve for spaghetti sauce shifts to the left.

B. supply curve for spaghetti sauce shifts to the right.

C. quantity demanded of spaghetti sauce stays the same

D. quantity demanded of spaghetti sauce decreases, and the quantity of spaghetti sauce that firms want to supply increases.

Question

Malachi

Business

25 May, 22:54

Suppose the equilibrium price of a jar of spaghetti sauce is $3, and the government imposes a price floor of $4 per jar. As a result of the price floor, the

A. demand curve for spaghetti sauce shifts to the left.

B. supply curve for spaghetti sauce shifts to the right.

C. quantity demanded of spaghetti sauce stays the same

D. quantity demanded of spaghetti sauce decreases, and the quantity of spaghetti sauce that firms want to supply increases.

+4

Answers (1)

Know the Answer?

Joyce · Answer 1

Option (D) is correct.

Explanation:

When there is a imposition of price floor by the government, if this price floor exceeds the prevailing market equilibrium price then as a result there is a reduction in the quantity demanded and increase in the quantity supplied.

In our case, price floor of $4 > equilibrium price of a jar of spaghetti sauce, $3

Hence, it will become expensive for the consumers to buy the same quantity at a higher prices, as a result there is a fall in the quantity demanded and at the same time there is a rise in the quantity supplied as it will become more profitable for the firm to produce more and supply more.