The government imposes a price floor on wheat that is below the market price. You are asked to suggest a rationing scheme that will minimize the misallocation of resources. You suggest
A) using rationing coupons that cannot be resold.
B) using rationing coupons that can be resold.
C) using a queuing system to compensate for the excess demand.
D) that no rationing system will be necessary.

Question

Quizplus · Accepted Answer

Since the price floor is set below the market price, it will not be binding. The market will clear at the equilibrium price, which is higher than the price floor, meaning there will be no excess supply or demand necessitating a rationing system.

The Government Imposes a Price Floor on Wheat That Is