Overview
Price floors are important economic tools used by governments to ensure that prices do not fall below a certain level, often to protect producers. However, while they aim to stabilize markets, they can lead to unintended consequences such as surpluses, where supply exceeds demand. This can create in...
Key Terms
Example: Minimum wage is a price floor for labor.
Example: A surplus of wheat occurs when farmers produce more than consumers buy.
Example: At market equilibrium, the price of a product stabilizes.
Example: Setting price floors is a form of government intervention.
Example: Higher prices may lead consumers to buy less of a product.
Example: Producers may increase production when prices are high.
Related Topics
Price Ceilings
A maximum price set by the government for a good or service, preventing prices from rising above a certain level.
intermediateMarket Equilibrium
The state where supply equals demand, leading to a stable market price.
intermediateSupply and Demand
The relationship between the quantity of a product that producers are willing to sell and the quantity that consumers are willing to buy.
beginnerKey Concepts
Price FloorSurplusMarket EquilibriumGovernment Intervention