If a price floor is established for cheese at $8 per pound, what is the likely market outcome?

A price floor is a minimum price set by the government or regulatory authority, above the equilibrium price, which can lead to specific market outcomes. In this scenario, establishing a price floor for cheese at $8 per pound means that sellers cannot sell cheese for less than this price.

When the price floor is above the equilibrium price—where supply equals demand—it discourages consumption since consumers might not be willing to purchase as much cheese at the higher price. On the supply side, producers are incentivized to supply more cheese because they can sell it at a higher price. This combination typically results in an excess supply in the market.

As a result, the quantity of cheese supplied exceeds the quantity demanded at this price, leading to a surplus of cheese. This surplus occurs because buyers find the price too high compared to what they are willing to pay, while producers take advantage of the guaranteed higher price and increase production. The surplus will continue to exist until the price floor is removed or adjusted to a level closer to the equilibrium price.

In contrast, a shortage would suggest that the price was set below equilibrium, which is not the case here. No effect on the market implies that the price floor is irrelevant, which isn't consistent with its role in affecting prices and supply