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Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is...

Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which of the following would you expect to take place in the market?
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Answer #1

Answer.)  A binding price floor is a situation when the price charged is more than the equilibrium price determined by market forces of demand and supply. when price ($1.5) is set at higher than equilibrium price ($1) , every producer has an incentive to sell more of its produce at higher prices which brings market at the situation when market is filled with surplus produce. Because demand is lower at relatively higher than equilibrium price, this brings market to stock of unsold goods or surplus produce.

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