Suppose a market is in equilibrium at $10.00 and the price floor is established below the...

Suppose a market is in equilibrium at $10.00 and the price floor is established below the equilibrium at $6.00. Which of the following will happen?

Select one:

a. a surplus will develop

b. a shortage will develop

c. the quantity exchanged will rise

d. the market will remain in equilibrium

Solutions

Expert Solution

Option: b (a shortage will develop)

Price floors prevent a price from falling below a certain level. When a price floor is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortage will develop.

In this case price floor id established at below $6 and market is in equilibrium at $10. As A result, a shortage will develop.

Rahul Sunny answered 1 year ago

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