refer to figure 6-7. if the government imposes a binding price floor of $5.00 in this market, what is the…
refer to figure 6-7. if the government imposes a binding price floor of $5.00 in this market, what is the result?
Answer
Explanation:
Step1: Understand price - floor concept
A binding price - floor is set above the equilibrium price. Here, the equilibrium price is $4.00 and the price - floor is $5.00.
Step2: Analyze quantity supplied and demanded
At a price of $5.00, the quantity supplied is 60 and the quantity demanded is 25 according to the graph.
Step3: Calculate the surplus
Surplus = Quantity supplied - Quantity demanded. So, Surplus = 60 - 25 = 35.
Answer:
There will be a surplus of 35 units.