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Refer to the figure below. If the government set a price floor of $30, there would be  
90 80 70 60 50 40 30 20 10 4 8 12 16 20 24 28 32 36

a) zero excess supply

b) excess supply of 16 units

c) excess supply of 12 units

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Answer #1

Correct option is (a).

Price floor is binding and effective only when imposed above free market equilibrium price. Here equilibrium price is $50 (at intersection of demand & supply curves), so a floor price of $30 is less than $50 and is ineffective, which will not impact market equilibrium.

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