Questions: Refer to Figure 6-3. A nonbinding price floor is shown in both panel (a) and panel (b). neither panel (a) nor panel (b). panel (b) only. panel (a) only.

Solution Steps

A price floor is a government- or group-imposed minimum price set for a particular good or service. A non-binding price floor is set _below_ the equilibrium price. This means the market will naturally settle at a price above the floor, making the floor irrelevant.

Panel (a) shows a horizontal line labeled "Price Ceiling." A price ceiling is the _maximum_ allowable price, the opposite of a price floor. Therefore, panel (a) does not depict a price floor.

Panel (b) shows a horizontal line labeled "Price Floor." The equilibrium price is where supply and demand intersect, which appears to be around a price of 4 and a quantity of 8. The "Price Floor" line is above this equilibrium point at approximately a price of 7. Since the price floor is above the equilibrium price, it _is_ binding, not non-binding. A non-binding price floor would be set below the price of 4.

Final Answer