Question on: WAEC Economics - 2018
A price floor is usually fixed
A
at the equilibrium and causes shortage
B
above the equilibrium and causes shortage
C
below the equilibrium and causes shortage
D
above the equilibrium and causes surplus
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Correct Option: D
A price floor is a government- or group-imposed price control or limit on how low a price can be charged for a product, good, commodity, or service.
A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be payed for labor.
For a price floor to be effective, it must be set above the equilibrium price.
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