Effects of Price Floors Above Equilibrium Price

Which statement(s) is(are) TRUE? Price floors set above the equilibrium price cause: I. shortages.

II. surpluses.

III. deadweight losses.

Which statement(s) is(are) TRUE? Price floors set above the equilibrium price cause: I. shortages. II. surpluses. III. deadweight losses.

I and III only III only I is true if demand is elastic; however, II is true if demand is inelastic. II and III only

To analyze the effects of price floors set above the equilibrium price, let's break down the statements:

1. Price Floors: A price floor is a minimum price set by the government. When it is set above the equilibrium price, it means that the price cannot fall below this level.

2. Effects of Price Floors:

   • Surpluses: When a price floor is set above the equilibrium price, the quantity supplied exceeds the quantity demanded at that price, leading to a surplus. Therefore, statement II is true.
   • Shortages: A shortage occurs when the quantity demanded exceeds the quantity supplied, which typically happens with price ceilings (not floors). Therefore, statement I is false.
   • Deadweight Losses: Price floors can lead to inefficiencies in the market, resulting in deadweight losses because the quantity traded in the market is less than the equilibrium quantity. Therefore, statement III is true.

Based on this analysis, the true statements are II and III.

Thus, the correct answer is: II and III only.