If the market equilibrium price is lower than the price floor, what is the effect?

When the market equilibrium price is lower than the price floor, it means that the legally established minimum price for a good or service is above what buyers and sellers would naturally agree upon in an unregulated market. In this scenario, the price floor results in a situation where the price cannot fall to the equilibrium level, leading to several important economic consequences.

One of the most notable effects is the restriction of trade, as some producers will be unwilling or unable to sell their goods at the higher price set by the floor. Meanwhile, consumers, faced with higher prices, may choose to purchase less of the good than they would at equilibrium. This misalignment of price leads to a surplus, as the quantity supplied at the price floor exceeds the quantity demanded by consumers.

Therefore, the correct answer highlights that a price floor can disrupt the natural balance of supply and demand, causing an excess of goods that cannot be sold at that higher price. This situation reflects the principles of microeconomics where price controls can lead to inefficiencies in the market.