Which of the following statements about price floors is correct?

• A. A price at or above the price floor is illegal.
• B. A price below the price floor is legal.
• C. A price below the price floor is always allowed by the government.
• D. A price at or above the price floor is legal.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the definition of a price floor. A price floor is a government-imposed minimum price that must be paid for a good or service, meaning prices cannot legally go below this level.
2. Step 2: Analyze what it means for prices relative to the price floor. Prices set below the price floor violate the law and are therefore illegal, while prices set at or above the price floor comply with the regulation and are legal.
3. Step 3: Evaluate each statement in the problem based on this understanding: - "A price at or above the price floor is illegal" contradicts the definition because prices at or above the floor are allowed. - "A price below the price floor is legal" is incorrect because prices below the floor are prohibited. - "A price below the price floor is always allowed by the government" is false since the government enforces the minimum price.
4. Step 4: Confirm that the correct statement is "A price at or above the price floor is legal," as it aligns with the concept that the price floor sets a minimum legal price.
5. Step 5: Summarize that price floors protect sellers by preventing prices from falling too low, and any price below the floor is illegal, while prices at or above the floor are legal.