Consider a market characterized by the following inverse demand and supply functions: PX = 10 - 2QX and PX = 2 + 2QX

Consider a market characterized by the following inverse demand and supply functions: PX = 10 - 2QX and PX = 2 + 2QX. A $4 per unit price floor will result in a

At equilibrium, QS = QD

Hence,

10 - 2QX = 2 + 2QX

-2QX - 2QX = 2-10

-4QX = -8

QX = 2

Hence equilibrium quantity = 2 units

Substitute 2 in any of the equation to get the equilibrium price

PX = 10 - 2QX

But QX = 2

Hence, PX = 10 - 2(2)

PX = 6

Hence equilibrium price = $6

A $4 per unit price floor will result in a

A price floor of $4 is below the equilibrium price ($6), therefore it is a nonbinding price floor (ineffective price). The forces of supply and demand will naturally move the market to the equilibrium.