22. The price floor ( min price) creates excess supply (surplus)

Question

BlackTom AI · Accepted Answer

Statement restatement: The prompt asks whether the price floor (minimum price) creates excess supply, i.e., a surplus, and offers True or False as options.
Option 1: True. A binding price floor is set above the market-clearing price, which raises the quantity supplied while the quantity demanded falls, generating a surplus. In other words, when the floor is above equilibrium, sellers are willing to supply more than buyers are willing to purchase, leading to excess supply. If the floor is not binding (below or at equilibrium), it does not create a surplus because the market price would prevail and supply and demand would clear.
Option 2: False. Claiming that a price floor never creates a surplus ignores the core mechanism: a higher legal minimum price tends to entice more production or supply than consumers are prepared to buy at that price. This is the classic surplus outcome associated with binding price floors. The only time this would not occur is if the floor were non-binding (at or below the equilibrium price), in which case there would be no surplus, but the statement as given does not specify binding vs. non-binding and is generally understood in the favorable case for a surplus.
Additional nuance: The surplus arises specifically when the floor is above the equilibrium price; if the floor coincides with the equilibrium, the market clears and there is no surplus. Conversely, price ceilings (maximum prices) typically create shortages, not surpluses. Here, the focus is on price floors producing excess supply.
In summary, the core idea is that a binding price floor leads to a surplus, so the statement is true in the standard interpretation. If an answer choice hinges on the binding condition, that caveat should be noted for full precision, but as a general proposition in introductory economics, True is correct.

25FAL-ECO-8-48630 Midterm Exam [ Thu, 10/16 by 11:59pm] MODULES[1 TO 5]

22. The price floor ( min price) creates excess supply (surplus)

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25FAL-ECO-8-48630 Midterm Exam [ Thu, 10/16 by 11:59pm] MODULES[1 TO 5]

22. The price floor ( min price) creates excess supply (surplus)

View Explanation

Log in for full answers

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