Identify the most accurate statement.

A price floor will have the largest effect if it is set:

a. substantially above the equilibrium price. b. slightly above the equilibrium price.

c. slightly below the equilibrium price.

d. substantially below the equilibrium price.

Sketch all four of these possibilities on a demand and supply diagram to illustrate your answer

Financial Markets:

The markets in a country that oversee the trading of derivatives and bonds at various times are referred to as financial markets. These markets are critical because they connect investors and businesses, providing the financial backing that businesses require to operate effectively in the market. In general, financial markets serve as a conduit between lenders and borrowers in the economy.

A price floor prohibits a price from going below a specific threshold but has no effect on prices above that threshold. If it is significantly above the equilibrium price, it will have the greatest influence in creating excess supply (as indicated by the total area inside the dotted lines on the graph, from D to S). This is depicted in the diagram below.

If it is just above the equilibrium price, it will have less impact. This is depicted in the following diagram.

Therefore an equilibrium price above a price floor is unaffected by that price floor, it will have no effect if it is set slightly or substantially below the equilibrium price. These scenarios are depicted in the above diagrams. So the correct answer is (a). substantially above the equilibrium price