A price floor results in

Step 1: Analyze the question The question asks what a price floor leads to. A price floor is a government-imposed minimum price, and it is usually set above the equilibrium price.

Step 2: Explain the concept

• Price floor (minimum price): the lowest legal price at which a good or service can be sold. Examples are the minimum wage and guaranteed minimum prices for agricultural produce like cocoa, groundnut, or grains.
• For a price floor to have any effect, it must be set above the equilibrium price.
• Price ceiling (maximum price): the opposite. It is set below the equilibrium price and causes shortages, which lead to excess demand, black or parallel markets, and hoarding.

Step 3: Work through the solution

1. Suppose the equilibrium price of maize is ₦100, where quantity demanded equals quantity supplied.
2. The government sets a minimum price of ₦150.
3. At ₦150, consumers buy less (quantity demanded falls, following the law of demand).
4. At ₦150, producers want to supply more (quantity supplied rises, following the law of supply).
5. Quantity supplied is now greater than quantity demanded, so there is a surplus (excess supply).

Step 4: Check the options

• A. Excess demand: this results from a price ceiling, not a floor. ❌
• B. Excess supply: correct. ✅
• C. Parallel market: this arises when a price ceiling creates shortages. ❌
• D. Hoarding of goods: this also occurs during shortages under a price ceiling. ❌

Answer: B. Excess supply

Exam tip: Remember "Floor = Frozen surplus, Ceiling = Craving shortage."

• Floor (minimum price) leads to surplus, or excess supply.
• Ceiling (maximum price) leads to shortage, which brings black markets and hoarding.