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Homework answers / question archive / A price floor above equilibrium will cause a larger surplus when demand is _____ and supply is _____
A price floor above equilibrium will cause a larger surplus when demand is _____ and supply is _____.
A. elastic; elastic
B. elastic; inelastic
C. inelastic; inelastic
D. perfectly inelastic; elastic
The correct answer is D. perfectly inelastic; elastic.
This is because price floor above the equilibrium level would lead to impact the economic output. It would reduce the real income of the consumers and the demand would reduce in economy. It is possible if the demand is price elastic. With perfectly inelastic demand, any change in price level would not impact the demand made by consumers. With price elastic supply level, there would be excess supply in the economy that would lead to generate a higher surplus level for the suppliers.