What Is One Effect Of A Price Floor

Government enforce price floor to oblige consumer to pay certain minimum amount to the producers.

What is one effect of a price floor.

If the market was efficient prior to the introduction of a price floor price floors can cause a deadweight. It may help farmers or the few workers that get to work for minimum wage but it does not always help everyone else. 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. Effects of a price floor.

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. The price effect however is a net effect of two sub effects. Government set price floor when it believes that the producers are receiving unfair amount. The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external.

Price effect in quantitative term is the changed in quantity demanded of a good due to changes in its price ceteris paribus. A price floor must be higher than the equilibrium price in order to be effective. Price floor is enforced with an only intention of assisting producers. It s generally applied to consumer staples.

However price floor has some adverse effects on the market. In the end even with good intentions a price floor can hurt society more than it helps.