Which of the following is a likely consequence of imposing a price floor above the equilibrium price in a competitive market?

• A. A surplus of the good
• B. The market clears at the floor price
• C. Equilibrium quantity increases
• D. A shortage of the good

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 that sellers can charge for a good or service. It is set above the equilibrium price to be effective.
2. Step 2: Recall that the equilibrium price is where the quantity demanded equals the quantity supplied. When a price floor is set above this equilibrium, the price cannot fall to the equilibrium level.
3. Step 3: Analyze the effect on quantity demanded and quantity supplied at the price floor. Since the price is higher than equilibrium, quantity demanded will decrease (consumers buy less), and quantity supplied will increase (producers want to sell more).
4. Step 4: Recognize that when quantity supplied exceeds quantity demanded, a surplus occurs. This means there is more of the good available than consumers want to buy at that price.
5. Step 5: Conclude that the likely consequence of imposing a price floor above equilibrium is a surplus of the good, not a shortage or an increase in equilibrium quantity.