ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When the price is over and above the equilibrium, suppliers are willing to supply well in excess of the demand. As we can see from the graph below, when the price floor is set above the equilibrium, suppliers are willing to supply more, but the demand falls as the prices are higher. In turn, a surplus is created.

Detailed explanation-2: -The result of the price floor is that the quantity supplied, Qs, exceeds the quantity demanded, Qd. There is excess supply, also called a surplus.

Detailed explanation-3: -Price floors are legal minimum prices set above the equilibrium price. Their purpose is to raise the incomes of producers. Price floors decrease quantity demanded and increase quantity supplied, so they create a surplus. The government must stand ready to purchase the surplus production.

Detailed explanation-4: -A price floor above the competitive equilibrium price will result in a surplus. A price ceiling above the competitive equilibrium price will result in a surplus. A price ceiling below the competitive equilibrium price will result in a shortage.

Detailed explanation-5: -Consumer surplus occurs when the price for a product or service is lower than the highest price a consumer would willingly pay. A producer surplus is when goods are sold at a higher price than the lowest price the producer was willing to sell for.