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What are the effects of a price floor?

Posted on April 15, 2014 at 9:15 AM

A price floor is a government price control that should be placed above market clearing equilibrium price to be effective. A floor price is a legal minimum price that aims to help low income producers.

A price floor is inefficient because it misallocates economic resources and leads to a surplus of goods (the quantity supplied is greater than the quantity demanded). It creates deadweight loss. The area of consumer and producer surplus is no longer maximized as a result of a price floor.

Watch this No Bull Review video on price floors to see the effects within a market.

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AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts

Categories: AP Macroeconomics, Macro Unit 1 Basic Economic Concepts, Micro Unit 1 Basic Economic Concepts

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