In economics, are capital goods purchased by firms (True/False), and what happens when a minimum price is set above the equilibrium price? A) A surplus occurs B) A shortage occurs C) The market remains in equilibrium D) Firms reduce production to match lower demand

What you are being asked

This question checks two basic microeconomics ideas: who buys capital goods, and what a price floor (minimum price) does when it is set above the market-clearing (equilibrium) price.

Capital goods and who buys them

• Capital goods are inputs used to produce other goods and services, like machines, tools, factory buildings, and equipment.
• These are typically bought by firms as part of investment spending.
• So the statement “Capital goods are purchased by firms” is True.

Minimum price above equilibrium: what the market does

A minimum price is a price floor. If it is set above equilibrium:

• At a higher price, suppliers want to sell more (quantity supplied rises).
• At a higher price, consumers want to buy less (quantity demanded falls).

So you get: $$Q_s > Q_d$$ which is a surplus.

Matching the correct option

• A) A surplus occurs is correct because the price floor is above equilibrium, creating excess supply.
• B) A shortage occurs would happen with a price ceiling below equilibrium, not a price floor above it.
• C) The market remains in equilibrium is false because $Q_s$ and $Q_d$ no longer match at the imposed price.
• D) Firms reduce production to match lower demand can happen over time, but the immediate market outcome at the set price is still a surplus.