What Is One Effect Of A 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.

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. The price effect however is a net effect of two sub effects. A price ceiling is a maximum amount mandated by law that a seller can charge for a product or service. 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. 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. Government enforce price floor to oblige consumer to pay certain minimum amount to the producers. A price floor must be higher than the equilibrium price in order to be effective.

Price effect in quantitative term is the changed in quantity demanded of a good due to changes in its price ceteris paribus. If the market was efficient prior to the introduction of a price floor price floors can cause a deadweight. It s generally applied to consumer staples. 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 floor is enforced with an only intention of assisting producers.