When a Price Floor Is Above the Equilibrium Price

question 196

Multiple Choice

When a price floor is above the equilibrium price,

• A) quantity demanded will exceed quantity supplied, so there will be a shortage.
• B) quantity supplied will exceed quantity demanded, so there will be a surplus.
• C) the market will be in equilibrium.
• D) This is a trick question because price floors are generally set below the equilibrium price.

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Definitions:

Complementary Goods

Goods that are often used together so that the consumption of one increases the demand for the other.

Cross-Price Elasticity

A gauge of the demand shift for one item in response to price adjustments of another item.

Cross-Price Elasticity

A measure of how the quantity demanded of one good responds to a change in the price of another good, indicating the degree of substitutability or complementarity between them.

Substitutes

Products or services that can replace or serve as alternatives to another, often influencing consumer choices and market competition.