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15. Suppose in the European Union (EU), initially the market for “ Brexit cheese” operates freely....

15. Suppose in the European Union (EU), initially the market for “ Brexit cheese” operates freely. Now the EU imposes a price floor for “Brexit cheese” that is below the market equilibrium price. Then,

a) The price floor causes no deadweight loss
b) The price floor increases the quantity of “Brexit cheese” demanded in the EU
c) The price floor creates a surplus of “Brexit cheese”
d) (b) and (c)

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Answer #1

Equilibrium price is determined where demand and supply are equal. But floor price is declared by the government to protect the producers of good. Here , Floor price is below the equilibrium ones. it suggests that market will operate at equilibrium price. Price will not fall down to floor level. So there will not be any deadweightloss.

Answer: (A)

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