Why Does The Government Set Price Floors

A minimum allowable price set above the equilibrium price is a price floor.

Why does the government set price floors.

Governments often seek to assist farmers by setting price floors in agricultural markets. In order for a price ceiling to be effective it must be set below the natural market equilibrium. With a price floor the government forbids a price below the minimum. When a price ceiling is set a shortage occurs.

It is argued farmers incomes are too low. 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 a minimum allowable price set above the equilibrium price. Price floors prevent a price from falling below a certain level.

Governments often seek to assist farmers by setting price floors in agricultural markets. A local government for example might set a price floor on parking fees in a. A price floor must be higher than the equilibrium price in order to be effective. Governments impose a price floor because they judge the policy to have an effect more valuable than the consequences.

When a price floor is set above the equilibrium price quantity supplied will exceed quantity demanded and excess supply or surpluses will result. A government set minimum wage is a price floor on the price of labour. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. 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.

For example the eu has used minimum prices for agriculture. Price floors are also used often in agriculture to try to protect farmers. With a price floor the government forbids a price below the minimum. When government laws regulate prices instead of letting market forces determine prices it is known as price control.

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. Price floors are used by the government to prevent prices from being too low. If minimum prices are set above the equilibrium it will cause an increase in prices. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.

Types of price floors 1.