ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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would be below the equilibrium
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would be at the equilibrium
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would be above the equilibrium
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None of the above
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Detailed explanation-1: -When the quantity supplied is equal to the quantity demanded it is called the equilibrium point. When the price floor is above the equilibrium price, the quantity supplied will exceed the quantity demanded as will create surplus supply due to higher price and a simultaneous fall in demand.
Detailed explanation-2: -When a price floor is put in place, the price of a good will likely be set above equilibrium.
Detailed explanation-3: -A price floor is defined as the lowest price that has to be legally paid for a good or service. It is generally always set above the equilibrium price. However, in the given scenario it is set below the equilibrium price. This would lead to excess demand in the market.
Detailed explanation-4: -If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level.
Detailed explanation-5: -When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. Price floors prevent a price from falling below a certain level.