A price floor policy establishes a minimum price for a market, and the policy is said to be binding if the market equilibrium price is less than the floor price. What impact does a binding price floor have on the market outcome?

A) Excess supply
B) Excess demand
C) Shortage
D) No impact, and the market price and quantity equal their equilibrium values

Binding Price Floor

A government-imposed price control that sets a minimum price for a good or service, which is above the equilibrium price, causing a surplus.

Excess Supply

A situation in a market where the quantity of a product offered for sale by producers exceeds the quantity demanded by consumers at a current price, leading to potential downward pressure on prices.

Market Outcome

The result of interactions between buyers and sellers in a market that determines the quantity sold and the price at which it sells.