An Effective Price Floor Will Theoretically Create A Shortage

Price floors are used by the government to prevent prices from being too low.

An effective price floor will theoretically create a shortage.

When society or the government feels that the price of a commodity is too low policymakers impose a price floor establishing a minimum price above the market equilibrium. Would this create a surplus or shortage. Implementing a price floor. The price floors are established through minimum wage laws which set a lower limit for wages.

Would this create a surplus or shortage. When the price is above the equilibrium the quantity supplied will be greater than the quantity demanded and there will be a surplus. An effective price floor creates a shortage of a good. Moreover for the price floor to be effective it should be higher than the economy s equilibrium price.

The price floor cannot be set under the equilibrium price because it will be called a price ceiling instead the government will loose its job to do that. A shortage will continue to exist and will grow smaller over time. Way to resolve price floor shortage. If the surplus exists in the market for a long period the price floor begins to fall below the price of equilibrium which can result in market failure.

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. A price floor is the lowest legal price a commodity can be sold at. 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. Price floors are also used often in agriculture to try to protect farmers.

But this is a control or limit on how low a price can be charged for any commodity. There are some problems due to the surplus quantity in demand is lesser than the quantity in supply created through the price floor. An effective price floor create a surplus of a good. If the floor was ineffective would it be drawn above or below equilibrium.

Price floor is the minimum price for a particular product or service. Draw an example of an effective price ceiling. 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.