Question

Consider a market for fish whose market demand and market supply for fish are specified as qd = 300 - 2.5 p and qs = - 20 + 1.5 p respectively. The government decides to impose a price floor of $50 per ton. What would be the resulting market distortion?

Answer 1

There would be no market distortion. Solving for p (300 - 2.5p = -20 + 1.5p) gets the equilibrium price of $80. At $50 a ton the price floor is below the equilibrium and is therefore not binding.