A price floor exists when the price is not allowed to increa

A price floor exists when the price is not allowed to increase above a certain level...True or False

Solution

False.

A price floor exists when price is not allowed to decrease below a certain level. Price floor is binding only if it sets above the equilibrium level price.An effective price floor leads to surplus in market because demand will be less at higher price.An example is minimum wage laws, wages are set by government above the equilibrium wages.This leads to increase in supply of labour but decrease in demand for labour due to high wage laws.