A price floor set above a market equilibrium price causes
A)a surplus.
B)a shortage.
C)producers to receive lower prices.
D)consumers to pay lower prices.

Question

Quizplus · Accepted Answer

A price floor set above a market equilibrium price creates a situation where the price is artificially high, leading to excess supply, i.e. a surplus. Producers are unable to sell all the goods that they produce, and prices may eventually fall due to the oversupply, but in the short run, surpluses are likely to persist. A shortage would occur if a price ceiling was set below the equilibrium price, leading to excess demand, as demand outstrips supply. Producers may receive lower prices for their surplus goods, but this is not a direct result of the price floor, but of the surplus it creates. Consumers, on the other hand, may end up paying more, as prices tend to stay high due to the surplus, and producers are reluctant to cut prices.

A Price Floor Set Above a Market Equilibrium Price Causes