A price floor:
A) is a maximum price allowed by law.
B) is a minimum price allowed by law.
C) has an effect only when it is set below the market price.
D) has little effect on market activity.

Question

Quizplus · Accepted Answer

A price floor is a minimum price allowed by law, set above the equilibrium market price. It creates a surplus of supply and a shortage of demand, which can lead to unintended consequences such as increased government spending, reduced efficiency, and market distortions. Therefore, option B is the correct answer. A, C, and D are incorrect because they describe a price ceiling, a price equilibrium, and a statement that is not necessarily true, respectively.

A Price Floor