An Effective Price Floor Will Theoretically Create A Shortage

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

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

Way to resolve price floor shortage. Draw an example of an effective price floor. A shortage will continue to exist and will grow smaller over time. Price floors are also used often in agriculture to try to protect farmers.

Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage the minimum price that can be payed for labor. An effective price floor creates a shortage of a good. 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.

If the floor was ineffective would it be drawn above or below equilibrium. The price floors are established through minimum wage laws which set a lower limit for wages. But it can cause the shortage because more people will buy it in the black market and the producers will bring less to the shelves of supermarket store. But this is a control or limit on how low a price can be charged for any commodity.

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. There are some problems due to the surplus quantity in demand is lesser than the quantity in supply created through the price floor. 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. A price floor is the lowest legal price a commodity can be sold at.

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. Price floor is the minimum price for a particular product or service. Would this create a surplus or shortage. An effective price floor create a surplus of a good.