Answer to Question #90372 in Economics of Enterprise for erick

Question

With aid of a fully diagram, explain the difference between the govermnent enforcing a minimum price below the equilibrium and the government enforcing a minimum price anove the equilibrium price, ceteris paribus

Answer 1

If the govermnent enforces a minimum price below the equilibrium, then it is a non-binding price floor, so it will have no effect. If he government enforces a minimum price above the equilibrium price, then it is a binding price floor, so it will increase the market price and create a surplus of goods.