Question

Select the correct answer. A price floor will usually shift: a. demand b. supply c. both d. neither Illustrate your answer with a diagram

Short answer

Neither

Step-by-step solution

Step.1 Introduction

A price floor is a lower limit imposed on the price of a productby the governemtto protect the sellers in the market. A consumer cannot purchase at a price lower than this limit.

Step.2 Explanation

A price floor does not causes any shift in the demand curve or the supply curve. However, a binding price floor can cause a movement on the demand and supply curves. At a price higher than the equilbrium level, the quantity demand would be lower than quantity supplied causing a surplus.