A price floor will be binding only if it is set
A)equal to the equilibrium price.
B)above the equilibrium price.
C)below the equilibrium price.
D)either above or below the equilibrium price.

Question

Quizplus · Accepted Answer

A price floor is a minimum price set by the government above the equilibrium price. When a price floor is set above the equilibrium price, it becomes binding because suppliers are willing to sell more at the higher price but demanders are not willing to buy all the quantity supplied. This creates a surplus in the market where suppliers are producing more than what can be sold at the price floor. Therefore, a price floor set above the equilibrium price will be binding.

A Price Floor Will Be Binding Only If It Is