Ineffective Price Floor

A price floor is the lowest legal price a commodity can be sold at.

Ineffective price floor.

When the price is above the equilibrium the quantity supplied will be greater than the quantity demanded and there will be a surplus. As you learned in the lessons above any price set above the equilibrium price is an ineffective price ceiling but is an effective. The most common example of a price floor is the minimum wage. 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.

The most common price floor is the minimum wage the minimum price that can be payed for labor. Since our original price floor of 4 00 was ineffective what happens if we increase the price floor to 10 00. Figure 2 b shows a price floor example using a string of struggling movie theaters all in the same city. This will raise the price floor line on the graph above the equilibrium price level.

Price floors are used by the government to prevent prices from being too low. You can now see that the equilibrium price is below the price floor so it is not possible for the equilibrium price to be attained. Price ceilings and price floors can be either effective or ineffective. This analysis shows that a price ceiling like a law establishing rent controls will transfer some producer surplus to consumers which helps to explain why consumers often favor them.

For example many governments intervene by establishing price floors to ensure that farmers make enough money by guaranteeing a minimum price that their goods can be sold for. Price ceiling price floor effective and ineffective. 3 wasted labor resources 4 inefficient amount of job search price floor below equilibrium there will be no surplus unemployment it is the price at which the price ceiling is. Effective price floor ineffective price floor price floor above equilibrium there will be surplus unemployment surplus unemployment q s q d effects of price floor.

Price floors are also used often in agriculture to try to protect farmers. The current equilibrium is 8 per movie ticket with 1 800 people attending movies. Price floor has been found to be of great importance in the labour wage market. Implementing a price floor.

Efficiency and price floors and ceilings. For a price floor to be effective the minimum price has to be higher than the equilibrium price. The net effect of the price floor in the above activity is that the price floor causes the area h to be transferred from consumer to producer surplus but also causes a deadweight loss of j k.