Which of the following best describes a price floor in a market?

• A. A price set by the government equal to the equilibrium price.
• B. A price determined solely by market forces without government intervention.
• C. A minimum price fixed by the government, generally imposed above the equilibrium price.
• D. A maximum price fixed by the government, generally imposed below the equilibrium price.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a price floor: it is a government-imposed minimum price that sellers can charge for a good or service.
2. Recognize that a price floor is typically set above the equilibrium price to be effective; if set below, it has no impact because the market price is already higher.
3. Recall that the equilibrium price is where the quantity demanded equals the quantity supplied without any government intervention.
4. Distinguish a price floor from a price ceiling: a price ceiling is a maximum price set below equilibrium, while a price floor is a minimum price set above equilibrium.
5. Conclude that the best description of a price floor is 'a minimum price fixed by the government, generally imposed above the equilibrium price.'