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A city's movie theaters reach a free-market equilibrium of $8 per ticket with 1,800 people attending. Worried the theaters might close, the city imposes a price floor of $12 per ticket. At $12, quantity demanded falls to 1,400. What does the fall from 1,800 to 1,400 attendees show about the effect of the price floor?
AIt has no effect on attendance, since supply still meets demand
BIt raises attendance above the free-market equilibrium level
CIt only affects ticket sellers, leaving quantity demanded unchanged
DIt reduces the number of tickets actually sold below the free-market level
Answer & Solution
Correct answer: D. It reduces the number of tickets actually sold below the free-market level
1. The free-market equilibrium quantity was 1,800 tickets at $8.
2. Raising the legal minimum price to $12 makes tickets more expensive, so quantity demanded falls to 1,400.
3. Since transactions require a willing buyer, the number of tickets actually sold falls to the lower quantity demanded.
4. 1,800 minus 1,400 leaves 400 fewer tickets sold than the free market would have sold.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 3 "Demand and Supply", section 3.5 | Demand, Supply and Efficiency_
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