Price Controls Relative to Equilibrium

Steps:

• Equilibrium price is P, where supply equals demand.
• Minimum price (floor) is effective if Pmin > P, creating surplus.
• Maximum price (ceiling) is effective if Pmax < P, creating shortage.
• Diagram shows Pmin > P and Pmax > P, so floor binds, ceiling does not.

Why B is correct:

• Minimum price exceeds equilibrium P, forcing price up and making it binding per price floor definition.

Why the others are wrong:

• A: Both cannot be effective simultaneously, as Pmin > P and Pmax < P contradict each other.
• C: Market price cannot continue unchanged with binding Pmin > P.
• D: Maximum price is ineffective above P, per ceiling rule.

Final answer: B