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Binding price floor in a market sets price?
below equilibrium price and causes a shortage
What factors determine whether a price floor is binding in a market?
A price floor is binding in a market when it is set above the equilibrium price, leading to a surplus of goods. Factors that determine whether a price floor is binding include the level at which the price floor is set, the elasticity of supply and demand for the product, and the presence of substitutes or complements in the market.
When is a price floor not binding?
the quantity of the good demanded with the price floor is less than the quantity demanded of the good without the price floor
Does a binding price floor cause a surplus in the market?
Yes, a binding price floor can cause a surplus in the market by setting the price above the equilibrium price, leading to an excess supply of the good or service.
When are price ceilings and price floors binding?
A price ceiling is the legal maximum price at which a good can be sold, while a price floor is the legal minimum price at which a good can be sold. A price ceiling is only binding when the equilibrium price is above the price ceiling. The market price then equals the price ceiling and the quantity demanded exceeds the quantity supplied, creating a shortage of goods. A price floor is only binding when the equilibrium price is below the price floor. The market price then equals the price floor and the quantity supplied exceeds the quantity demanded, creating a surplus of goods.
