In the market for a given product,when a price floor is set above the equilibrium price the result will be
A) more exchanges made in the market.
B) an increase in the supply of the product.
C) a decrease in the demand for the product.
D) a deadweight loss.

Question

Quizplus · Accepted Answer

When a price floor is set above the equilibrium price, it creates a surplus of the product as the quantity supplied exceeds the quantity demanded. This leads to a deadweight loss as resources are misallocated, and there are inefficiencies in the market. In this scenario, producers may be willing to supply more, but consumers will purchase less due to the higher prices, causing a decrease in demand. Therefore, prices floors are typically not an effective policy tool for increasing the quantity supplied of a product.

In the Market for a Given Product,when a Price Floor