FIGURE 5- 3
-Refer to Figure 5- 3. To be effective, a price floor must lie
A) within the boundaries of P2 and P3.
B) above P1 but below P2.
C) anywhere below P1.
D) below P1 but above P3.
E) anywhere above P1.

Question

FIGURE 5- 3
-Refer to Figure 5- 3. To be effective, a price floor must lie
A) within the boundaries of P2 and P3. 
B) above P1 but below P2. 
C) anywhere below P1. 
D) below P1 but above P3. 
E) anywhere above P1.

Quizplus · Accepted Answer

A price floor is effective when it is set above the equilibrium price (P1), as it prevents the price from falling to the equilibrium level, leading to a surplus.

FIGURE 5- 3 -Refer to Figure 5- 3. to Be Effective, a Price