Why is the price floor above the equilibrium point?
This is pathetic. Not that you can’t answer it, but that your teacher didn’t know the answer. What a shame that she is teaching an economics class. A price floor can be above the equilibrium price or below the equilibrium price. If it is above the equilibrium price, it is a “binding” price floor. Why? “Binding price floor” means that it keeps the price from falling to the equilibrium price. Imagine if you were standing at the top of the graph and you wanted to get to the equilibrium price, the binding floor would keep you from getting there. An “unbinding” price floor is when the price floor is set below the equilibrium price – it is unbinding because it has no effect on the actual price. A binding price floor creates a surplus – as Qs > Qd. Similarly, a binding price ceiling is set below the equilibrium price. If you start from the bottom of a graph and you wanted to get to the equilibrium price, a binding price ceiling prevents you from reaching it (imagine trying to touch the sky, a
