Would this create a surplus or shortage.
An effective price floor will theoretically create a shortage.
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.
Would this create a surplus or shortage.
Draw an example of an effective price ceiling.
An effective price floor creates a shortage of a good.
Price floor is the minimum price for a particular product or service.
A shortage will continue to exist and will grow smaller over time.
But this is a control or limit on how low a price can be charged for any commodity.
An effective price floor create a surplus of a good.
Price floors are also used often in agriculture to try to protect farmers.
But it can cause the shortage because more people will buy it in the black market and the producers will bring less to the shelves of supermarket store.
Moreover for the price floor to be effective it should be higher than the economy s equilibrium price.
It is legal minimum price set by the government on particular goods and services in order to prevent producers from being paid very less price.
Way to resolve price floor shortage.
For example the uk government set the price floor in the labor market for workers above the age of 25 at 7 83 per hour and for workers between the ages of 21 and 24 at 7 38 per hour.
Why would it be ineffective.
If the surplus exists in the market for a long period the price floor begins to fall below the price of equilibrium which can result in market failure.
Draw an example of an effective price floor.
Implementing a price floor.
The price floor cannot be set under the equilibrium price because it will be called a price ceiling instead the government will loose its job to do that.
The price floors are established through minimum wage laws which set a lower limit for wages.
If the floor was ineffective would it be drawn above or below equilibrium.
A price floor is the lowest legal price a commodity can be sold at.
Like price ceiling price floor is also a measure of price control imposed by the government.
Price floors are used by the government to prevent prices from being too low.
