The imposition of a binding price floor on a market causes quantity demanded to be
A)greater than quantity supplied.
B)less than quantity supplied.
C)equal to quantity supplied.
D)Both (a) and (b) are possible.

Question

The imposition of a binding price floor on a market causes quantity demanded to be
A)​greater than quantity supplied.
B)​less than quantity supplied.
C)​equal to quantity supplied.
D)​Both (a) and (b) are possible.

Quizplus · Accepted Answer

A binding price floor is a minimum price set above the equilibrium price of a good or service. If the floor is set higher than the equilibrium price, it will create a surplus of the good, as quantity supplied will be greater than quantity demanded. This means that quantity demanded will be less than quantity supplied, as stated in option (B). Option (A) is incorrect because quantity demanded cannot be greater than quantity supplied in this scenario. Option (C) is incorrect because quantity demanded and quantity supplied can only be equal at the market equilibrium, which is not the case when a price floor is imposed above the equilibrium price. Option (D) is also incorrect because only option (B) is possible in this scenario.

The Imposition of a Binding Price Floor on a Market