An effective price floor will:

• A. cause a shortage of the good or service
• B. result in a surplus of the good or service
• C. have no impact on the market equilibrium
• D. lead to the price falling below the floor

Answer: (B)

Verified step by step guidance

1. Understand what a price floor is: it is a legally established minimum price that sellers can charge for a good or service, set above the market equilibrium price.
2. Recall that when a price floor is set above the equilibrium price, the price cannot fall to the equilibrium level where supply equals demand.
3. Analyze the effects of a price floor above equilibrium: at this higher price, the quantity supplied by producers increases, but the quantity demanded by consumers decreases.
4. Recognize that this mismatch between higher supply and lower demand creates an excess supply, which is called a surplus.
5. Conclude that an effective price floor (one set above equilibrium) results in a surplus of the good or service, not a shortage or no impact.