When there is a binding price floor
A)there is no equilibrium.
B)the quantity demanded does not equal the quantity supplied.
C)all potential producers are happy because they can sell the good at a higher price.
D)the government is helping consumers at the expense of producers.

Question

Quizplus · Accepted Answer

When there is a binding price floor, the price is set above the equilibrium price, which leads to an excess supply or surplus of the good, meaning the quantity supplied exceeds the quantity demanded. In this situation, some producers will be unable to sell their goods at the higher price, and there will be some unused or unsold inventory. Therefore, option B is correct. Option A is incorrect, as there is an imbalance in the market, though there is no equilibrium price where quantity demanded equals quantity supplied. Option C is incorrect, as only some producers are happy, while others may not be able to sell their goods. Option D is partially incorrect, as the government may be helping some producers, while hurting others, and may also be hurting consumers who face higher prices for the good.

When There Is a Binding Price Floor