Suppose a Price Floor Is Set at $10 in the Market

question 110

Multiple Choice

Suppose a price floor is set at $10 in the market shown in the graph. Which of the following statements is true?

• A) A shortage of five units occurs
• B) Excess supply of five units occurs
• C) Total surplus increases
• D) Deadweight loss falls

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Definitions:

Taxes

Compulsory financial charges imposed by a government on individuals and organizations to fund public expenditures.

Disposable Income

Money left after taxes and social security contributions have been subtracted, which can be either spent or saved according to personal preference.

Aggregate Spending

The total spending in an economy, including consumption, investment, government expenditures, and net exports.

Discretionary Fiscal Policy

The deliberate manipulation of government purchases, taxation, and transfer payments to promote macroeconomic goals, such as full employment, price stability, and economic growth