To be effective, a price floor must be
A)above the equilibrium price.
B)at the equilibrium price.
C)below the equilibrium price.
D)anywhere on the graph.

Question

Quizplus · Accepted Answer

A price floor is set by the government to ensure that a minimum price is paid for a product/service, which is often above the equilibrium price. If it is set at or below the equilibrium price, it will not have any effect as the market is operating efficiently without any intervention. Therefore, for a price floor to be effective in achieving its objective, it must be set above the equilibrium price, leading to a surplus of supply and a shortage of demand, which creates a gap for the price floor to be effective.

To Be Effective, a Price Floor Must Be