Suppose the government decides to eliminate a binding price floor that it had previously imposed on a particular good. It can be expected that
A) the price would increase, the quantity demanded would decrease and the quantity supplied would increase.
B) the price would decrease, the quantity demanded would increase and the quantity supplied would decrease.
C) the price would increase, the quantity demanded would increase and the quantity supplied would decrease.
D) the price would decrease, the quantity demanded would decrease and the quantity supplied would increase.
E) no changes would take place.

Question

Quizplus · Accepted Answer

When a binding price floor is eliminated, it means that the government is no longer enforcing a minimum price on the good. Since the price will drop, it will be more affordable for consumers, increasing the quantity demanded. However, at the lower price, suppliers may not be willing to produce as much as before, leading to a decrease in the quantity supplied. Therefore, the price would decrease, the quantity demanded would increase and the quantity supplied would decrease.

Suppose the Government Decides to Eliminate a Binding Price Floor