Question

If a binding price floor is imposed on the market for eBooks, then

a) the demand for eBooks will decrease.
b) the supply of eBooks will increase.
c) a surplus of eBooks will develop.
d) All of the above are correct.

Answer 1

c) a surplus of eBooks will develop

A binding price floor imposed on the market for eBooks will result in a surplus of eBooks.

Step-by-step explanation:

A price floor is a minimum price set by the government that is above the equilibrium price in a market. In the case of a binding price floor imposed on the market for eBooks, it would result in a surplus of eBooks. This is because the price floor is set above the equilibrium price, causing the quantity supplied to be greater than the quantity demanded.

To illustrate this concept, you can sketch the four possibilities on a demand and supply diagram. When a price floor is substantially above the equilibrium price, it creates a surplus, which is represented by the area between the demand and supply curves above the equilibrium quantity.

Therefore, the correct answer is c) a surplus of eBooks will develop.