Why Does The Government Set Price Floors

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.

Why does the government set price floors.

A government set minimum wage is a price floor on the price of labour. In order for a price ceiling to be effective it must be set below the natural market equilibrium. With a price floor the government forbids a price below the minimum. For example the eu has used minimum prices for agriculture.

Price floors are also used often in agriculture to try to protect farmers. Price floors prevent a price from falling below a certain level. If minimum prices are set above the equilibrium it will cause an increase in prices. Governments impose a price floor because they judge the policy to have an effect more valuable than the consequences.

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 most common price floor is the minimum wage the minimum price that can be payed for labor. A minimum price is when the government don t allow prices to go below a certain level. Price ceilings a price ceiling occurs when the government puts a legal limit on how high the price of a product can be.

This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. A price floor must be higher than the equilibrium price in order to be effective. Governments often seek to assist farmers by setting price floors in agricultural markets. A minimum allowable price set above the equilibrium price is a price floor a minimum allowable price set above the equilibrium price.

When a price ceiling is set a shortage occurs. When a price floor is set above the equilibrium price quantity supplied will exceed quantity demanded and excess supply or surpluses will result. Governments often seek to assist farmers by setting price floors in agricultural markets. A minimum allowable price set above the equilibrium price is a price floor.

With a price floor the government forbids a price below the minimum. It is argued farmers incomes are too low. When government laws regulate prices instead of letting market forces determine prices it is known as price control. Price floors are used by the government to prevent prices from being too low.

Types of price floors 1.