Why Does The Government Set Price Floors

Price floors prevent a price from falling below a certain level.

Why does the government set 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. In order for a price ceiling to be effective it must be set below the natural market equilibrium. If minimum prices are set above the equilibrium it will cause an increase in prices. Price ceilings a price ceiling occurs when the government puts a legal limit on how high the price of a product can be.

The most common price floor is the minimum wage the minimum price that can be payed for labor. A minimum allowable price set above the equilibrium price is a price floor. It is argued farmers incomes are too low. When a price floor is set above the equilibrium price quantity supplied will exceed quantity demanded and excess supply or surpluses will result.

With a price floor the government forbids a price below the minimum. With a price floor the government forbids a price below the minimum. A government set minimum wage is a price floor on the price of labour. Price floors are used by the government to prevent prices from being too low.

Governments impose a price floor because they judge the policy to have an effect more valuable than the consequences. Price floors are also used often in agriculture to try to protect farmers. Governments often seek to assist farmers by setting price floors in agricultural markets. A minimum price is when the government don t allow prices to go below a certain level.

A minimum allowable price set above the equilibrium price is a price floor a minimum allowable price set above the equilibrium price. For a price floor to be effective it must be set above the equilibrium price. Governments often seek to assist farmers by setting price floors in agricultural markets. Types of price floors 1.

Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity. A local government for example might set a price floor on parking fees in a. When a price ceiling is set a shortage occurs. For example the eu has used minimum prices for agriculture.

A price floor must be higher than the equilibrium price in order to be effective.