What is the long-run consequence of a price floor law?
A) A surplus will continue to exist and will grow larger over time.
B) A surplus will continue to exist and will grow smaller over time.
C) A shortage will continue to exist and will grow larger over time.
D) A shortage will continue to exist and will grow smaller over time.
E) The amount of the surplus will not change.

Question

Quizplus · Accepted Answer

A price floor set above the equilibrium price creates a surplus because it increases the price at which suppliers are willing to sell more than the price at which consumers are willing to buy. This surplus does not naturally correct itself because the price cannot adjust downward due to the price floor, leading to a persistent and potentially growing surplus as suppliers continue to produce more than consumers are willing to buy at the inflated price.

What Is the Long-Run Consequence of a Price Floor Law