The athletics department at your university currently sells 50,000 tickets to football games at an equilibrium price of $40 each. The university administration has asked that the athletic department not sell any tickets below $30. At a price of $30, the athletic department is willing to sell 20,000 tickets, but consumers are willing to purchase 80,000 tickets. Which of the following is a result of the new price floor?

(A) a surplus of 30,000 tickets
(B) a shortage of 30,000 tickets
(C) a surplus of 60,000 tickets
(D) a shortage of 60,000 tickets
(E) The price floor isn’t binding.

(E) The price floor isn’t binding.

Explanation:

The restriction imposed by the administration is that prices should not be below $30, which means that the athletic department can continue selling tickets at the current equilibrium price of $40 each. If the administration had imposed a maximum price of $30, then there would be a shortage of tickets, but since the current price meets the administration's requirements, no change should occur.

The answer is (E) The price floor isn’t binding.

E

Explanation:

The price floor isn’t binding.

The administration only put a restriction on what is the least amount it can be sold for which is $30 ,therefore allowing the athletic department to continue selling tickets at the current equilibrium price of $40 each.

The current price meets the administration's requirements, no change should occur. Meaning that the price floor isn't binding

Price floor means the lowest (or minimum) price fixed by the company, government often it is higher than the equilibrium price of the commodity. It is mentioned that if a price floor is non-binding it means that it is set that is below the equilibrium or we can say the equilibrium price is above the floor price. A price floor below the equilibrium is nonbinding and hence, as a result of this price control, there will be no distortion in the market. As in this case.

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