"A price floor that is less than the equilibrium price leads to a shortage of the good." Is this assertion true or false? Explain your answer

What will be an ideal response?


The assertion is false. A price floor is the minimum price that can legally be charged. If the price floor is less than the equilibrium price, it has no effect because the equilibrium price is already in compliance with the law. Hence a price floor set below the equilibrium price has no effect. However, a price floor set above the equilibrium price will have an effect and will create a surplus of the good.

Economics

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