What is the outcome if a price floor is set above the equilibrium price?

When a price floor is set above the equilibrium price, it results in a legal minimum price that sellers can charge, which is higher than what the market would naturally dictate. This price floor leads to a situation where the quantity supplied exceeds the quantity demanded because at the higher price, consumers will buy less while producers will want to supply more.

As a direct consequence of this mismatch between supply and demand, a surplus occurs. This surplus represents goods that remain unsold because consumers are not willing to purchase as many at the increased price. Additionally, the presence of the price floor creates a deadweight loss, as the market is unable to reach an efficient equilibrium where supply equals demand. The deadweight loss reflects the lost economic efficiency when the quantity traded in the market is less than what it would be at equilibrium due to the imposed price controls.

In summary, the establishment of a price floor above the equilibrium price disrupts normal market functioning, leading to surpluses of goods and creating deadweight losses in the economy as resources are not allocated efficiently.