Why are binding price floor laws typically passed by governments?

• A. To eliminate all forms of black market activity
• B. To lower the market price below the equilibrium price
• C. To increase consumer surplus by reducing prices
• D. To ensure that producers receive a minimum income for their goods or services

Answer: (D)

Verified step by step guidance

1. Understand what a binding price floor is: it is a government-imposed minimum price set above the market equilibrium price, meaning the price cannot legally go below this floor.
2. Recognize the effect of a binding price floor: since it is set above equilibrium, it typically causes a surplus because quantity supplied exceeds quantity demanded at that price.
3. Analyze the government's motivation: the main goal is to protect producers by guaranteeing they receive a minimum price, which helps ensure a minimum income for their goods or services.
4. Consider why other options are incorrect: a binding price floor does not lower prices or increase consumer surplus; instead, it usually raises prices and can reduce consumer surplus.
5. Note that while black markets can arise due to price controls, eliminating black markets is not the primary reason governments impose binding price floors.