The Surplus Caused by a Binding Price Floor Will Be

question 2

Multiple Choice

The surplus caused by a binding price floor will be greatest if

• A) demand is inelastic and supply is elastic.
• B) supply is inelastic and demand is elastic.
• C) both supply and demand are elastic.
• D) both supply and demand are inelastic.

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Definitions:

Average Total Cost

The total cost of production divided by the quantity of output produced; a measure of per-unit cost.

Price

The amount of money required to purchase a good or service, determined by various factors including supply and demand.

Perfectly Competitive Industry

A market structure where many firms sell identical products, entry and exit are unobstructed, and all buyers and sellers have perfect information.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing to supply.