Question:
If the government imposes a binding price floor in a competitive market, which of the following is most likely to occur?
(1) A shortage of the good.
(2) A surplus of the good.
(3) An increase in consumer surplus.
(4) A decrease in producer surplus.
(5) Market equilibrium will be maintained.
Correct Answer:
(2)
Answer Explanation:
A binding price floor is set above the equilibrium price. At this artificially high price, Quantity Supplied is greater than Quantity Demanded, creating a surplus (excess supply) in the market.
Topic: Price Control Year: 2024
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