Question

In: Economics

f a price floor is a binding constraint on a market, then a. ​ sellers cannot...

f a price floor is a binding constraint on a market, then

a.

​ sellers cannot sell all they want to sell at the price floor.
b.

​ the equilibrium price must be above the price floor.
c.

​ the quantity demanded must exceed the quantity supplied.
d.

​ buyers cannot buy all they want to buy at the price floor.

Solutions

Expert Solution

Correct option is a. sellers cannot sell all they want to sell at the price floor.

If a price floor is a binding constraint on a market, then sellers cannot sell all they want to sell at the price floor.  

Price floor is a minimum price determined by government or organization for a particular good. This is the minimum price that buyers are required to pay for the good. A price floor set above equilibrium price is effective, when equilibrium price is below the price floor, then price floor is binding constraint on the market. The price tends to move towards the equilibrium price because of the market forces of demand & supply but when the market price hits the floor, it cannot fall any further. Therefore, the market price equals the price floor. So, when price floor is a binding constraint on a market, then sellers cannot sell all they want to sell at the price floor & this leads to surplus because the quantity supplied of good exceeds the quantity demanded.

Rahul Sunny answered 1 year ago
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