Suppose the government establishes a binding price floor for some product. At the price floor,
A) although sellers are selling all of the product that they desire, consumers are not able to buy all that they desire.
B) both sellers and buyers are exchanging the free- market equilibrium quantity.
C) although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all that they desire.
D) both sellers and buyers are satisfied with the quantity that is being exchanged.
E) a new free- market equilibrium price and quantity will be established.

Question

Quizplus · Accepted Answer

At a price floor, the government sets a minimum price at which a product must sell. This price floor is above the equilibrium price, which creates a surplus of the product (quantity supplied is greater than quantity demanded). Therefore, although consumers are purchasing all of the product that they desire at this price (because there is a surplus), the sellers are not selling all that they desire (because there is a surplus and they cannot sell all the excess).

Suppose the Government Establishes a Binding Price Floor for Some