A price floor will create the largest surplus when:
A) both supply and demand are inelastic.
B) both supply and demand are elastic.
C) supply is elastic and demand is inelastic.
D) supply is inelastic and demand is elastic.

Question

Quizplus · Accepted Answer

A price floor creates a surplus when it is set above the equilibrium price. The surplus is largest when both supply and demand are elastic because elastic supply and demand mean that quantity supplied increases significantly and quantity demanded decreases significantly in response to the price floor.

A Price Floor Will Create the Largest Surplus When