A nonbinding price floor
i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

Question

A nonbinding price floor 
i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

Quizplus · Accepted Answer

A nonbinding price floor is a price floor that is set at a level below the equilibrium price. As it is set below the equilibrium price, it does not have any impact on the market and does not create a shortage or surplus. However, if a price floor is set above the equilibrium price, then it becomes a binding price floor and creates a surplus. Therefore, option B) iv) only is the correct choice.

A Nonbinding Price Floor