A price floor set above the equilibrium price will always lead to a surplus in the market, resulting in underproduction of goods due to reduced consumer demand.

A price floor is a minimum price set by the government for a good or service, and when it is set above the equilibrium price, it can create a surplus. The equilibrium price is where the quantity of goods supplied matches the quantity demanded by consumers. When the price floor is higher than this equilibrium, producers are encouraged to make more of the product because they receive a higher price, but consumers will buy less since it costs more than they are willing to pay. For example, if the government sets a price floor for bread at $3 when the equilibrium price is $2, consumers might only buy half as much bread, while bakers will make more, leading to excess bread that doesn’t get sold. This situation causes a surplus, which means there is more of the product available than people want to buy, ultimately leading to underproduction of goods in the long run.