When the government removes a binding price floor:
A)quantity demanded will decrease and quantity supplied will increase.
B)quantity demanded will increase and quantity supplied will decrease.
C)excess demand will develop.
D)excess supply will develop.

Question

Quizplus · Accepted Answer

When a government removes a binding price floor, the price of the good typically decreases to reach the equilibrium price. This lower price increases the quantity demanded (because consumers are more willing to buy the good at a lower price) and decreases the quantity supplied (because producers are less willing to supply the good at a lower price), thus eliminating any excess supply that the price floor had created.

When the Government Removes a Binding Price Floor