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Which of the following scenarios best illustrates the concept of a binding price...

Oct 28, 2023

Which of the following scenarios best illustrates the concept of a binding price floor? A) The government sets the price of milk below the equilibrium price B) The market price of wheat falls due to technological advances C) The government sets the minimum wage above the equilibrium wage D) A company sets the price of its product based on consumer demand

Key Concept

A binding price floor is a government-imposed minimum price set above the equilibrium price in a market.

Explanation

In this scenario, the government sets the minimum wage above the equilibrium wage. This creates a binding price floor in the labor market, as employers are legally required to pay workers at least the minimum wage. As a result, the quantity of labor supplied exceeds the quantity demanded, leading to unemployment or a surplus of labor.

What happens to the quantity of labor supplied when the minimum wage is set above the equilibrium wage?, Generate me a similar question