Figure 6-11
-Refer to Figure 6-11.If the government imposes a price floor at $10,it would be

Question

Figure 6-11 
-Refer to Figure 6-11.If the government imposes a price floor at $10,it would be

Quizplus · Accepted Answer

A price floor is binding only if it is set above the equilibrium price. In this case, the equilibrium price for both Demand A and Demand B is $8, which is lower than the $10 price floor. Thus, the price floor would be binding for both Demand A and Demand B. However, in the case of Demand B, the quantity demanded is lower than the quantity supplied at the price floor of $10, which means there will be a surplus. On the other hand, in the case of Demand A, the quantity demanded is higher than the quantity supplied at the price floor of $10, which means there will be excess demand or a shortage. Therefore, the price floor would be binding if market demand is Demand A and non-binding if market demand is Demand B.

Figure 6-11 -Refer to Figure 6-11.If the Government Imposes a Price Floor