Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?
A)Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.
B)Quantity demanded will increase, quantity supplied will decrease, and a surplus will result.
C)Quantity demanded will decrease, quantity supplied will increase, and a shortage will result.
D)Quantity demanded will increase, quantity supplied will decrease, and a shortage will result.

Question

Quizplus · Accepted Answer

A binding price floor sets a minimum price above the equilibrium price. At this higher price, quantity demanded will decrease and quantity supplied will increase, leading to a surplus.

Suppose a Binding Price Floor on Sparkling Wine Is Proposed