A binding price floor in a market is removed. Which of the following is likely to occur as a result?
A)The supply of the item will rise.
B)The market price will fall.
C)The market price will rise.
D)The demand for the item will fall.

Question

Quizplus · Accepted Answer

A binding price floor means that the market price cannot fall below a certain level. When it is removed, the market price is free to adjust to its equilibrium level, which may be lower than the price floor. Therefore, the market price is likely to fall. Neither the supply nor the demand for the item is affected directly by the removal of a price floor, although the change in the market price may have indirect effects on them. Thus, choices A, C, and D are not correct.

A Binding Price Floor in a Market Is Removed