For a Price Floor to Be Binding, It Must Be

question 27

Multiple Choice

For a price floor to be binding, it must be set

• A) at the free- market equilibrium price.
• B) very low.
• C) at a level such that there exists some unsatisfied demand.
• D) above the free- market equilibrium price.
• E) below the free- market equilibrium price.

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Definitions:

Units

The individual elements or items produced or available in some quantity.

Variable Cost

Costs that change in proportion to the level of production or sales activity, such as raw material and labor costs.

Fixed Cost

Expenses that do not vary with the level of production or sales activity, such as rent, salaries, and insurance premiums.

Period Cost

Costs that are expensed in the period in which they are incurred, typically including selling and administrative expenses, rather than being included in the cost of goods sold.