A price floor
A) is the highest price at which it is legal to trade a particular good, service, or factor of production.
B) is the lowest price at which it is legal to trade a particular good, service, or factor of production.
C) is an illegal price to charge.
D) is the equilibrium price when the stock market crashes.
E) is the lowest price for which the quantity demanded equals the quantity supplied.

Question

Quizplus · Accepted Answer

A price floor is a government-mandated minimum price that cannot be legally traded below. Therefore, it is the lowest price at which it is legal to trade a particular good, service, or factor of production. Choice A is incorrect because it describes a price ceiling. Choice C is incorrect because it implies an illegal activity, which contradicts the definition of a price floor as a legally mandated minimum price. Choices D and E are both incorrect because they describe the equilibrium price, which is the price where the quantity demanded and quantity supplied are equal, and not necessarily related to a price floor.

A Price Floor