For a price floor to be binding, it must be set
A) at the free- market equilibrium price.
B) very low.
C) at a level such that there exists some unsatisfied demand.
D) above the free- market equilibrium price.
E) below the free- market equilibrium price.

Question

Quizplus · Accepted Answer

A price floor is a minimum price set by the government above the equilibrium price. If the price floor is set below the equilibrium price, it will have no effect on the market. If it is set at the equilibrium price, it will also have no effect, as the market is already in equilibrium. A binding price floor is one that is set above the equilibrium price, which creates a surplus of supply and a shortage of demand, as suppliers are willing to sell more at the higher price, but there are fewer buyers willing to buy at the higher price.

For a Price Floor to Be Binding, It Must Be