Question

The demand for pizza is represented by P= 10-Qd/4, and the supply of pizza is represented by Ps= 4+1s/2, and Q in thousands and P in dollars. The market for pizza is perfectly competitive. Suppose a price floor of $1 was set above the equilibrium price. What would be the result?

Answer 1

If the price floor of $1 was set above the equilbruim price, then there is a surplus in the market .since at the price floor above the equilbruim price, the quantity demanded is fall due to higher price in the market and quantity supplied rises due to higher price , it is incentive to producer to supply more good at higher price. and thus quantity supplied exceeds quantity demanded at price floor which creates surplus in the market and market become inefficient.