An Effective Price Floor Will Theoretically Create A Shortage

Would this create a surplus or shortage.

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. 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. The price floors are established through minimum wage laws which set a lower limit for wages. An effective price floor creates a shortage of a good.

A shortage will continue to exist and will grow smaller over time. 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. 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. When the price is above the equilibrium the quantity supplied will be greater than the quantity demanded and there will be a surplus.

Moreover for the price floor to be effective it should be higher than the economy s equilibrium price. The most common price floor is the minimum wage the minimum price that can be payed for labor. 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. Price floors are used by the government to prevent prices from being too low.

If the floor was ineffective would it be drawn above or below equilibrium. Draw an example of an effective price floor. A price floor is the lowest legal price a commodity can be sold at. 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.

Would this create a surplus or shortage. There are some problems due to the surplus quantity in demand is lesser than the quantity in supply created through the price floor. But this is a control or limit on how low a price can be charged for any commodity. Why would it be ineffective.

Implementing a price floor. Draw an example of an effective price ceiling. Price floors are also used often in agriculture to try to protect farmers. An effective price floor create a surplus of a good.