ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result. When government laws regulate prices instead of letting market forces determine prices, it is known as price control.

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: -The ceiling price is binding and causes the equilibrium quantity to change – quantity demanded increases while quantity supplied decreases. It causes a quantity shortage of the amount Qd – Qs.

Detailed explanation-4: -What happens to equilibrium supply and demand if a price floor is set below the equilibrium price? Nothing happens. Since the floor is below equilibrium, the market is still able to determine the quantity and price the same way it always does.