A side effect of a price floor set above the equilibrium price is:
A) the new price is below equilibrium price.
B) an excess supply of the good is created.
C) an excess demand for the good is created.
D) the supply of the good decreases.
E) the demand for the good increases.

Question

Quizplus · Accepted Answer

When a price floor is set above the equilibrium price, it creates an artificial price that is higher than what the market would have set on its own. As a result, suppliers are willing to supply more goods at this higher price, but consumers are not willing to buy as much at this higher price. This leads to an excess supply of the good, as the quantity supplied exceeds the quantity demanded. This excess supply can lead to a variety of problems, such as wasteful surpluses, decreased efficiency, and even black markets. Therefore, choice B is the correct answer.

A Side Effect of a Price Floor Set Above the Equilibrium