Do Governments Earn Money On Price Floors

What is the difference between price ceiling and price floor.

Do governments earn money on price floors.

Notice that p f is above the equilibrium price of p e. 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. A price floor that is set above the equilibrium price creates a surplus. Types of price floors.

For a price floor to be effective the minimum price has to be higher than the equilibrium price. Suppose the government sets the price of wheat at p f. The most common price floor is the minimum wage the minimum price that can be payed for labor. Figure 4 8 price floors in wheat markets shows the market for wheat.

It is a kind of political pressure from suppliers to the government to keep the price high. A price ceiling means that producers can not raise the price while price floor means that producers can not cut the price below the assigned price. The most common example of a price floor is the minimum wage. Price floors are used by the government to prevent prices from being too low.

Price floors are also used often in agriculture to try to protect farmers. 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. Why are price floors implemented by governments. A price floor is an established lower boundary on the price of a commodity in the market.

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.