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:

Absorption Costing

An accounting method that includes all direct costs and allotted indirect costs associated with manufacturing a product.

Ending Inventory

The total value of goods available for sale at the end of an accounting period.

Manufacturing Costs

Manufacturing costs encompass all expenses directly involved in the production of a good, including raw materials, labor, and factory overhead.

Direct Materials

Raw materials that are traceable directly to the manufacturing of a product.