Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?
A. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
B. The number of farmers selling soybeans decreases.
C. Consumers' income increases, and soybeans are a normal good.
D. The number of consumers buying soybeans increases.
To determine which of the events could transform the price floor from one that is not binding to one that is binding, we need to understand what a price floor is and how it works.
A price floor is a government-imposed minimum price that is set above the equilibrium price in a market. When a price floor is set, it is not binding if the equilibrium price is already above the price floor. In this case, the market transactions will occur at the equilibrium price, and the price floor has no effect.
However, a price floor becomes binding when the government sets it above the equilibrium price, resulting in excess supply or a surplus. At this point, the price floor prevents the market from reaching equilibrium, and some soybeans will remain unsold.
Now, let's analyze each event to see if it could transform the price floor from one that is not binding to one that is binding:
A. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
- This event will likely increase the supply of soybeans. However, it will not directly affect the price floor unless it leads to a significant increase in supply that surpasses the demand, causing a surplus. Therefore, this event is not likely to transform the price floor from not binding to binding.
B. The number of farmers selling soybeans decreases.
- When the number of farmers selling soybeans decreases, it could reduce the supply in the market. If the decrease in supply is significant enough to create a shortage at the price floor, then the price floor could become binding. Therefore, this event could potentially transform the price floor from not binding to binding.
C. Consumers' income increases, and soybeans are a normal good.
- When consumers' income increases, it typically leads to an increase in demand for normal goods. If the increase in demand is substantial and surpasses the supply at the price floor, it could make the price floor binding. Therefore, this event could potentially transform the price floor from not binding to binding.
D. The number of consumers buying soybeans increases.
- Increasing the number of consumers buying soybeans will generally increase the demand. If the increase in demand is significant enough to exceed the supply at the price floor, it could make the price floor binding. Therefore, this event could potentially transform the price floor from not binding to binding.
In conclusion, the events B, C, and D could potentially transform the price floor from one that is not binding to one that is binding.