A nonbinding price floor
I.causes a surplus.
II.causes a shortagE.
III..is set at a price above the equilibrium pricE
IV.
Is set at a price below the equilibrium pricE.
A)(iii) only
B)(iv) only
C)(i) and (iii) only
D)(ii) and (iv) only

Question

A nonbinding price floor 
I.causes a surplus.
II.causes a shortagE.
III..is set at a price above the equilibrium pricE
IV.
Is set at a price below the equilibrium pricE.​
A)​(iii) only
B)​(iv) only
C)​(i) and (iii) only
D)​(ii) and (iv) only

Quizplus · Accepted Answer

A nonbinding price floor means that the government has set a minimum price at a level above the equilibrium price, but the market price is still below this level. Since the market price is not influenced by the price floor, it will not cause a surplus or a shortage. Rather, the market will continue to operate at the equilibrium price, which is below the nonbinding price floor. This means that the nonbinding price floor does not have any impact on the market and will not cause any inefficiencies. Therefore, the only statement that is true for a nonbinding price floor is that it is set at a price below the equilibrium price, which is statement (iv).

A Nonbinding Price Floor