Question

Are there more or fewer exchange at a price floor than at equilibrium price? Explain in 5senteces please,

Answer 1

Answer : Yes. There occur fewer exchange at price floor. Because at price floor the market price level become higher than the equilibrium price. We know that there exists negative relationship between price and quantity demanded. This means that if price rise then quantity demanded decrease and vise versa. Therefore, as at price floor the market price level become higher than the equilibrium price, hence at price floor consumers buy less. For this reason fewer exchange occur at price floor in compared to exchange at equilibrium price.