Question

1 Recall that Buckholz had “John” create a vulture from $50 of wood and try to sell it for $200, but no one would pay that. Why was this venture unsuccessful? Choose one and tell me the reasons why you choose that answer.  

A. John paid too much for the wood.

B. John’s time was too valuable.

C. John reduced the value of the wood.

D. Both B and C.

2. Price floors are typically accompanied by a standard series of symptoms. What are they?

Answer 1

1) The correct answer will be "B" John's time was too valuable. John was selling a vulture made of wood but the cost of wood was only $50. John was selling it for $200 that means the remaining $150 was the value of time spent by John to make that vulture from wood. But people find it too much and they were not willing to buy it. Thye didn't consider John's time spend on making that vulture be worth $150.

2) A price floor is a situation when the government or any other authority has set the price over and above the equilibrium price of that particular good. Setting a price floor will increase the supply of the product and at the new price, the demand will be less creating a surplus supply in the market. As the price floor is the lowest legal price at which the good can be sold, this is used for products like minimum wage or agriculture produce etc.

• The price floor is always set above the equilibrium price of the good if not the price floor will be ineffective.
• Price floors create a surplus of supply and reduce the demand for the product at the given price.
• Price floors are generally used by the government to prevent exploitation or enable the farmers to get the actual value of their produce.