A price floor policy establishes a minimum price for a market, and the policy is said to be binding if the market equilibrium price is less than the floor price. What impact does a binding price floor have on the market outcome?
A) Excess supply
B) Excess demand
C) Shortage
D) No impact, and the market price and quantity equal their equilibrium values

Question

Quizplus · Accepted Answer

A binding price floor, set above the equilibrium price, leads to excess supply because the minimum price is higher than what buyers are willing to pay, resulting in unsold surplus.

A Price Floor Policy Establishes a Minimum Price for a Market