If the Intended Aim of the Price Floor Set at $12

question 100

Multiple Choice

If the intended aim of the price floor set at $12, as shown in the graph, was a net increase in the well-being of producers, then positive analysis would consider the policy to be:

• A)effective if area C is larger than area E.
• B)effective if areas E + B are larger than areas C + D + F.
• C)ineffective if area B is larger than area E.
• D)ineffective if areas E + B are larger than areas A + C + D + F.

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Definitions:

Output

The total amount of goods or services produced by a company, industry, or economy.

Prospective Sunk Costs

Future costs that, once incurred, cannot be recovered and should not influence current decision-making processes.

Economic Decision-Making

The process of choosing among alternatives to maximize outcomes based on objectives and constraints.

Investment Decisions

The process of choosing where to allocate resources among various options to generate returns over a certain period.