Refer to the accompanying graph to answer the next question. At the binding price floor, by how much would the quantity supplied change from the market equilibrium?

Question

BlackTom AI · Accepted Answer

To tackle this question, first locate the market equilibrium on the graph where the supply (S) and demand (D) curves cross. The intersection occurs at a quantity of about 68,000 units, which is the market equilibrium quantity.

Next, identify the binding price floor, which is a price level above the equilibrium price. The graph shows a horizontal dashed line at P3 representing the binding price floor. At this price, determine the quantity supplied by finding where the supply curve intersects the price level P3. From the graph, this intersection corresponds to a quantity of about 100,000 units.

Now compare the quantity supplied under the price floor to the equilibrium quantity. The change in quantity supplied is: 100,000 − 68,000 = 32,000 units, an increase.

Why the other options are not correct:
- Option a (decrease by 18,000) implies a lower quantity under the floor, which would occur if the price floor reduced quantity supplied, but higher price typically increases quantity supplied along the upward-sloping supply curve.
- Option b (decrease by 30,500) similarly suggests a reduction in quantity supplied, which contradicts the basic effect of a higher price on supply.
- Option d (decrease by 32,000) again indicates a drop in quantity supplied, which is inconsistent with moving up along the supply curve to a higher quantity at a binding floor.

Therefore, the correct interpretation is that at the binding price floor, the quantity supplied rises from the equilibrium level by about 32,000 units.

Refer to the accompanying graph to answer the next question. At the binding price floor, by how much would the quantity supplied change from the market equilibrium?Single choice

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