Why does a surplus exist under a binding price floor?
A) It encourages sellers to produce less of the product.
B) It encourages buyers to purchase more of the product.
C) It makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.
D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the legal market.
E) It discourages sellers from increasing the quality of the products they sell,which in turn increases the quantity demanded.

Question

Quizplus · Accepted Answer

A binding price floor sets a minimum legal price that must be charged for a product. If this legal price is set higher than the equilibrium price determined by supply and demand forces, it creates a situation where the quantity supplied exceeds the quantity demanded at the higher price. This leads to a surplus of the product that sellers cannot sell at the higher legal price, resulting in excess supply.

Why Does a Surplus Exist Under a Binding Price Floor