What Is A Price Floor What Problem Does It Create

A price floor will cause a large surplus when the demand is low and the supply is high.

What is a price floor what problem does it create.

Like price ceiling price floor is also a measure of price control imposed by the government. The most common price floor is the minimum wage the minimum price that can be payed for labor. Price floors are used by the government to prevent prices from being too low. Price floors are also used often in agriculture to try to protect farmers.

It is legal minimum price set by the government on particular goods and services in order to prevent producers from being paid very less price. Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity. A price floor must be higher than the equilibrium price in order to be effective. For a price floor to be effective the minimum price has to be higher than the equilibrium price.

The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external. The floor is the lowest point at which something can be sold without losing money. A price floor is an established lower boundary on the price of a commodity in the market. The most common example of a price floor is the minimum wage.

But this is a control or limit on how low a price can be charged for any commodity.