Why Does The Government Set Price Floors

A local government for example might set a price floor on parking fees in a.

Why does the government set price floors.

Price floors prevent a price from falling below a certain level. For example the eu has used minimum prices for agriculture. Price floors are used by the government to prevent prices from being too low. A minimum price is when the government don t allow prices to go below a certain level.

With a price floor the government forbids a price below the minimum. A government set minimum wage is a price floor on the price of labour. When government laws regulate prices instead of letting market forces determine prices it is known as price control. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.

A price floor must be higher than the equilibrium price in order to be effective. A minimum allowable price set above the equilibrium price is a price floor. Price ceilings a price ceiling occurs when the government puts a legal limit on how high the price of a product can be. 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.

Governments often seek to assist farmers by setting price floors in agricultural markets. Types of price floors 1. Price floors are also used often in agriculture to try to protect farmers. When a price ceiling is set a shortage occurs.

The most common price floor is the minimum wage the minimum price that can be payed for labor. Governments often seek to assist farmers by setting price floors in agricultural markets. For a price floor to be effective it must be set above the equilibrium price. In order for a price ceiling to be effective it must be set below the natural market equilibrium.

Governments impose a price floor because they judge the policy to have an effect more valuable than the consequences. If minimum prices are set above the equilibrium it will cause an increase in prices. It is argued farmers incomes are too low. 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 floor is set above the equilibrium price quantity supplied will exceed quantity demanded and excess supply or surpluses will result.