The greater the price elasticity of market demand, the less will be the reduction in market output from a price floor.

Question

Quizplus · Accepted Answer

If market demand is highly price elastic, a price floor will lead to a relatively smaller reduction in market output. This is because as the price increases due to the price floor, consumers will likely reduce their quantity demanded by a greater percentage, making it more difficult for producers to reduce their output as much. Conversely, if market demand is less price elastic, a price floor will lead to a larger reduction in market output as producers will be able to reduce their output more without experiencing a significant decline in price.

The Greater the Price Elasticity of Market Demand, the Less