Consiquence Of A Price Floor

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

Consiquence of a price floor.

Effect of the price floor on consumers. For example many governments intervene by establishing price floors to ensure that farmers make enough money by guaranteeing a minimum price that their goods can be sold for. A price floor is a government or group imposed price control or limit on how low a price can be charged for a product good commodity or service. A price floor is the lowest legal price a commodity can be sold at.

In the absence of the price floor the equilibrium price will be reached and there will be no excess demand or excess supply. The govt has to spend money to buy the surplus which involves opportunity cost. Worse off because they must pay a higher price and consumer surplus falls. 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.

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

A price floor must be higher than the equilibrium price in order to be effective. Price floors are used by the government to prevent prices from being too low. Consequences of price floors.