Consiquence Of A Price Floor

Like price ceiling price floor is also a measure of price control imposed by the government.

Consiquence of a price floor. 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. For a price floor to be effective the minimum price has to be higher than the equilibrium price. In the absence of the price floor the equilibrium price will be reached and there will be no excess demand or excess supply.

A consequence of a price floor is that it interferes with the rationing function of the price mechanism resulting in an excess supply. 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. Effect of the price floor on consumers. Worse off because they must pay a higher price and consumer surplus falls.

A price floor is the lowest legal price a commodity can be sold at. But this is a control or limit on how low a price can be charged for any commodity. The govt has to spend money to buy the surplus which involves opportunity cost. 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.

Consequences of price floors. 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. 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.