When Prices of Products Are Set Below Equilibrium

question 130

Multiple Choice

When prices of products are set below equilibrium,

• A) society's resources are inefficiently allocated.
• B) firms expand output to increase profits.
• C) firms earn excessively high profits.
• D) consumers benefit from surpluses of cheap goods.

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Definitions:

Price Floor

A government-imposed limit on how low a price can be charged for a product, service, or commodity.

Competitive Price

A pricing strategy where the price of a product or service is set based on the prices of competing products or services in the market.

Consumer Surplus

The discrepancy between what buyers are inclined to pay for a service or product and their actual expenditure.

Producer Gains

The profits or positive financial outcomes that producers experience from selling goods or services, often due to pricing or market conditions.