A price floor is the lowest legal price a commodity can be sold at.
Price floors eventually create a surplus.
Another good example to explain a price floor would be the agriculture market.
Suppliers can be worse off.
However price floor has some adverse effects on the market.
A surplus occurs when there is more of a supply of a good than is demanded by consumers.
For example the uk government set the price floor in the labor market for workers above the age of 25 at 7 83 per hour and for workers between the ages of 21 and 24 at 7 38 per hour.
This happens when government puts into place a price floor.
Price floors cause surpluses.
Price floors transfer consumer surplus to producers.
This analysis shows that a price ceiling like a law establishing rent controls will transfer some producer surplus to consumers which helps to explain why consumers often favor them.
Price ceiling a price ceiling is a government set price below market equilibrium price.
They are forced to pay higher prices and consume smaller quantities than they would with free market.
Think of an auction where a buyer holds in his mind a price limit.
Do these create shortages or surpluses.
A price floor could be set at p4 causing a surplus of q3 q0.
Price floor is enforced with an only intention of assisting producers.
Any employer that pays their employees less than the specified.
Efficiency and price floors and ceilings.
When the government removes a binding price floor.
If price floor is less than market equilibrium price then it has no impact on the economy.
Price floors are also used often in agriculture to try to protect farmers.
But the price floor p f blocks that communication between suppliers and consumers preventing them from responding to the surplus in a mutually appropriate way.
The price floors are established through minimum wage laws which set a lower limit for wages.
Quantity demanded will increase and quantity supplied will decrease.
Government set price floor when it believes that the producers are receiving unfair amount.
The original consumer surplus is g h j and producer surplus is i k.
Remember hearing stories about the government paying farmers to not grow crops.
Consumers are clearly made worse off by price floors.
A consumer surplus occurs when the price for a product or service is lower than the highest price a consumer would willingly pay.
Price floors are used by the government to prevent prices from being too low.
The net effect of the price floor in the above activity is that the price floor causes the area h to be transferred from consumer to producer surplus but also causes a deadweight loss of j k.
Figure 2 b shows a price floor example using a string of struggling movie theaters all in the same city.
