One of the Problems Created by Price Floors Set Above

question 28

Multiple Choice

One of the problems created by price floors set above the equilibrium is:

• A) the effect on firm profitability.
• B) firms don't have incentives to reduce costs.
• C) the creation of surplus.
• D) how to cope with the shortages.

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Definitions:

Capital

Refers to financial assets or the financial value of assets, such as cash and goods, used in a business to generate wealth through investment or production.

Substitution Effect

The change in consumption patterns due to a price change that makes one good more economically attractive than its alternatives.

Output Effect

Output Effect is the impact on total production or output when a firm adjusts its resources, such as labor or capital, in response to changes in market conditions.

Substitute Resource

A resource or product that can be used in place of another to fulfill a similar function or need.