Final answer:
Setting a price floor above the equilibrium price leads to a surplus, as the quantity supplied exceeds quantity demanded. This results in fewer transactions and reduces market efficiency due to the misallocation of resources.
Step-by-step explanation:
If a price floor is set above the equilibrium price in a market, the result will be that quantity supplied (Qs) will exceed quantity demanded (Qd), leading to a surplus of the product. As the market price is above the equilibrium price, consumers are less willing or able to purchase the product at the higher price floor, resulting in reduced demand (Qd). However, producers are more willing or able to supply the product at this higher price, causing an increase in supply (Qs). Because the limit on transactions is on the demand side, the number of transactions that actually occur will fall to Qd. This creates an excess of supply over demand, which we identify as a surplus. Price floors and ceilings are known to cause inefficiencies in the market by preventing the market from reaching an equilibrium where demand meets supply. Additionally, they both reduce the number of transactions and social surplus, resulting in a net negative effect on the market.