Which statement(s) is TRUE? Price floors set above the equilibrium price cause:
I. shortages.
II. surpluses.
III. deadweight losses.
A) I and III only
B) II and III only
C) III only
D) I is true if demand is elastic; however, II is true if demand is inelastic.

Question

Quizplus · Accepted Answer

A price floor set above the equilibrium price creates a surplus of the good, as suppliers are willing to supply more than consumers are willing to buy at that high price. This results in a deadweight loss due to the inefficient allocation of resources. Therefore, statements II and III are true. Statement I is not true because shortages occur when the price is set below the equilibrium price, not above it. The elasticity of demand does not impact the direction of the effect on surpluses and deadweight losses.

Which Statement(s) Is TRUE? Price Floors Set Above the Equilibrium