The surplus caused by a binding price floor will be greatest if ?
Correct answer: C. both supply and demand are elastic
- A. demand is inelastic and supply in elastic
- B. supply is inelastic, and demand is elastic
- C. both supply and demand are elastic
- D. both supply and demand are inelastic
Explanation
A binding price floor creates a surplus because quantity supplied exceeds quantity demanded. Elastic demand and supply produce the largest changes in quantities, so the surplus is greatest when both are elastic.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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