Suppose Lewis lives in a community with no price controls.What would he expect will happen if his town borders a community where there is a binding price floor on most products?
A) Prices in the legal market in the community with a binding price floor will rise.
B) Prices in the legal market in the community with a binding price floor will fall.
C) There will be surpluses in the community with a binding price floor.
D) More consumers will purchase the product in the community with the price floor.
E) The black market in his community will be larger than the black market in the community with the binding price floor.

Question

Quizplus · Accepted Answer

A binding price floor sets a minimum price above the equilibrium, leading to excess supply or surpluses in the market where it is imposed.

Suppose Lewis Lives in a Community with No Price Controls