Consiquence Of A Price Floor

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.

Consiquence of a price floor.

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. Price floors are used by the government to prevent prices from being too low. 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. In the absence of the price floor the equilibrium price will be reached and there will be no excess demand or excess supply.

The most common example of a price floor is the minimum wage. Like price ceiling price floor is also a measure of price control imposed by the government. For a price floor to be effective the minimum price has to be higher than the equilibrium price. The govt has to spend money to buy the surplus which involves opportunity cost.

Effect of the price floor on consumers. Price floors are also used often in agriculture to try to protect farmers. The most common price floor is the minimum wage the minimum price that can be payed for labor. A price floor must be higher than the equilibrium price in order to be effective.

A consequence of a price floor is that it interferes with the rationing function of the price mechanism resulting in an excess supply. Consequences of price floors. A price floor is the lowest legal price a commodity can be sold at.