What Is One Effect Of A Price Floor

A price floor is an established lower boundary on the price of a commodity in the market.

What is one effect of a price floor.

Effect of price floor. 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. 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. In the end even with good intentions a price floor can hurt society more than it helps.

Government enforce price floor to oblige consumer to pay certain minimum amount to the producers. Government set price floor when it believes that the producers are receiving unfair amount. Effects of a price floor. However price floor has some adverse effects on the market.

Price effect in quantitative term is the changed in quantity demanded of a good due to changes in its price ceteris paribus. It s generally applied to consumer staples. A price floor must be higher than the equilibrium price in order to be effective. It may help farmers or the few workers that get to work for minimum wage but it does not always help everyone else.

Price floor is enforced with an only intention of assisting producers. If the market was efficient prior to the introduction of a price floor price floors can cause a deadweight.