Practice prompt · Q:economics-and-market-foundations/test-price-floor-001

Test a binding price floor and its incidence boundary

Compare a minimum price with equilibrium, compute excess supply and short side trade, and reject universal seller benefit claims.

Updated Aug 7, 2026 Review due Nov 7, 2026

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Linden's baseline equilibrium is $60 and 800 chairs per week. What follows from a hypothetical $70 minimum price under the supplied schedules?

Choose the best answer. a The $70 floor binds above the $60 equilibrium, creates a 200-chair surplus, and limits modeled trade to 700 chairs; seller allocation, unsold output, costs, and enforcement determine who gains. b Every seller gains because all 900 offered chairs sell at $70. c The 200-chair surplus must be ending inventory and an accounting loss.

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Answer: a

Choice a. At $70, Qs is 900 and Qd is 700, so the floor binds with 200 excess supply and 700 short-side units before allocation, production, and enforcement effects.