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What will occur if a legal price floor is placed on a good below its free-market equilibrium?

What will occur if a legal price floor is placed on a good below its free-market equilibrium?<br/>

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Asked by Daulatguru, Last updated: Dec 19, 2024

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2 Answers

Markda John

Markda John

Markda John
Markda John

Answered Jan 01, 2018

The correct answer to this question is that the equilibrium price will ration out the good. The equilibrium price is meant to be what someone would rationally pay for something when it has a healthy amount of stock. By pricing it lower than that, one can easily get rid of extra stock if the equilibrium price isn’t selling it well.

However, the equilibrium price will keep the good from becoming subject to a shortage. That would happen when the price is very low for a very large quantity, promoting people to buy in large quantities. On the flip side, if one prices a good above the equilibrium prince, the sales will fall. This creates surpluses in stores, and will lead to the prices lowering.

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John Smith

John Smith

John Smith
John Smith

Answered Oct 25, 2016

The equilibrium price will ration the good
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