In order to be effective, a price floor
A)must be set below equilibrium price.
B)must be set above equilibrium price.
C)must be set at equilibrium price.
D)must be a zero price.

Question

Quizplus · Accepted Answer

A price floor is a minimum price set by the government or any regulatory authority. If it is set below the equilibrium price, then it is ineffective and doesn't bring about any change. This is because the market already has a lower price that consumers are willing to pay, which would lead to a surplus of goods. 
Hence, to be effective, a price floor must be set above the equilibrium price. This leads to a change in the market price and encourages suppliers to produce more while reducing the quantity demanded by consumers.

In Order to Be Effective, a Price Floor