Why does a surplus exist under a binding price floor?
A) It encourages sellers to produce less of the product.
B) It encourages buyers to purchase more of the product.
C) It makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.
D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the legal market.
E) It discourages sellers from increasing the quality of the product they sell, which, in turn, increases the quantity demanded.

Question

Quizplus · Accepted Answer

A binding price floor creates a situation where the price is set above the market equilibrium price. This means that the quantity supplied will exceed the quantity demanded, resulting in a surplus of the product. In other words, there will be more sellers wanting to sell the product at the higher price, but fewer buyers willing to pay that price. This surplus exists because the price is too high, and the quantity supplied exceeds the quantity demanded.

Why Does a Surplus Exist Under a Binding Price Floor