Question

A minimum wage is an example of a price floor or minimum price that must be paid. If effective, such a price floor would be _____ the market price and would lead to a _____ .

Answer 1

Answer:

If effective, such a price floor would be above the market price and would lead to a excess supply.

Explanation:

A price floor can be described as a price control in which the minimum price to be charged for goods and services is imposed by a government or a group.

For a price floor to be effective and binding, it has to be set above the market or equilibrium price. This is because a price floor will neither be effective nor nonbinding when it set below the equilibrium price.

Any price above the equilibrium or market price creates or leads to excess supply. Excess supply is a situation whereby quantiy of commodity supplied is more than the quantity demanded of the commodity.

Based on the above explanation, if effective, such a price floor would be above the market price and would lead to a excess supply.