Final answer:
A nonbinding price floor, like a minimum wage, has no effect when set below the market equilibrium wage, while a binding price floor, such as a living wage, is set above the equilibrium and can lead to unemployment by creating a surplus of labor.
Step-by-step explanation:
A nonbinding price floor, such as a minimum wage, exists when the set floor is below the equilibrium price. In this situation, the market wage for labor is higher than the minimum wage, so the minimum wage does not affect employment or wages and is therefore nonbinding. On the other hand, a binding price floor occurs when the floor is above the equilibrium price.
This typically happens with a living wage, which is set to meet basic living standards and is often higher than the equilibrium wage. As a result, employers must pay the living wage, potentially leading to a surplus of labor (unemployment) because the quantity of labor supplied exceeds the quantity demanded at that higher wage.