Suppose the textbook market is shown in the graph below. If a price floor is set above the equilibrium price, what is the resulting surplus in the market?

• A. The surplus is the difference between the quantity supplied and quantity demanded at the price floor.
• B. The surplus is the difference between the equilibrium price and the price floor.
• C. The surplus is the difference between the equilibrium quantity and the quantity supplied at the price floor.
• D. The surplus is the difference between the quantity demanded and the equilibrium quantity.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a price floor is. A price floor is a legally imposed minimum price set above the equilibrium price, which prevents the price from falling to the market-clearing level.
2. Step 2: Identify the equilibrium price and quantity where the supply and demand curves intersect. This is the price and quantity without any intervention.
3. Step 3: At the price floor (which is above equilibrium), determine the quantity supplied by looking at the supply curve at that price.
4. Step 4: At the same price floor, determine the quantity demanded by looking at the demand curve at that price.
5. Step 5: Calculate the surplus as the difference between the quantity supplied and the quantity demanded at the price floor, i.e., Surplus = Quantity Supplied - Quantity Demanded.