A price floor is binding when it is set:
A)above the equilibrium price, causing a shortage.
B)above the equilibrium price, causing a surplus.
C)below the equilibrium price, causing a shortage.
D)below the equilibrium price, causing a surplus.
E)at the equilibrium price.

Question

Quizplus · Accepted Answer

A price floor is binding when it is set above the equilibrium price, leading to a surplus because the minimum price at which goods can be sold is higher than the price at which quantity supplied equals quantity demanded, causing suppliers to offer more of the good than consumers are willing to buy at that price.

A Price Floor Is Binding When It Is Set