If A Price Floor Is Set Below The Equilibrium Price

Again think about it. Now let s look at the your second question which is the price floor is set above equilibrium. Price floor set below the equilibrium price does not cause a shortage because the minimum wage law does not stop the wage from rising above.

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More than one of the above is correct.

If a price floor is set below the equilibrium price.

O shortages will develop the quantity demanded will exceed the quantity supplied. If a price floor is set below the equilibrium price it will not have any effect on the market. So look at what the quantity demanded and quantity supplied will be at that price floor set below equilibrium. If a price floor is not binding then a.

The free market equilibrium is at e with price p 0 and quantity q 0. The equilibrium price is above the price floor. The government now establishes a binding price floor at p 1. The quantity supplied will exceed the quantity demanded.

However if the price ceiling is placed below an equilibrium price it is considered non binding and has no practical effect. That will answer your first question. If a price ceiling is set above the equilibrium price in. A price floor set at 10 would not cause a surplus.

If price floor is placed above an equilibrium price there is a surplus. The equilibrium price is below the price floor. Wage will rise until shortage disappears at the equilibrium wage the equilibrium wage is perfectly legal when the price floor i e.

They will cause a high demand and this will result in limited supply due to the low prices. C there will be excess demand. B there will be a shortage. A price ceiling set at 15 would cause a shortage of 10 units.

There are a number of things that will happen to prices set below market equilibrium. If a price floor is set above the equilibrium price a there will be a surplus. Transcribed image textfrom this question.

Minimum wage is below it. This because in this case the minimum price set in the market is already. If the floor is set at or below the equilibrium price it has no effect because the free market equilibrium remains attainable a binding price floor leads to excess supply.

It has no legal enforcement mechanism. If a price floor is set above the equilibrium price in a market multiple choice o rationing will be unnecessary.