A Price Floor Will Create the Largest Surplus When

question 62

Multiple Choice

A price floor will create the largest surplus when:

• A) both supply and demand are inelastic.
• B) both supply and demand are elastic.
• C) supply is elastic and demand is inelastic.
• D) supply is inelastic and demand is elastic.

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Definitions:

Law of Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other factors remain constant.

LRATC

Long-Run Average Total Cost, referring to the average cost per unit of output when all inputs are considered variable over time.

Economies of Scale

Businesses experience cost savings linked to the size of their operations, with the per-unit cost usually falling as the operation size grows.

Entire Range

The complete spectrum or entirety of something, without leaving parts out.