Question

Describe the impact to a market that was in equilibrium if the government imposes a binding price floor. Be sure to discuss the effect on price, quantity of supply, quantity of demand, and more than one unintended consequence.

Answer 1

Ans:-The government impose binding price floor means the customers compulsory to pay more for goods/services than the price fixed on free market principle.The government fixed a price floor for many reason,the result of this is an increasing supply and decreasing demand.Binding price floor prevent the price of goods in a market from falling below a certain price level as a result of binding price floor is imposed on a market and the price floor is set above the equilibrum price then the quantity supplied will exceed the quantity demanded .Therefore excess supply or surplus of a particular goods will result in the market.On the otherhand if a price ceiling is said below the equilibrium price the quantity demanded will exceed quantity supplied and as a result excess demand or shortage of a particular product will result in the market.