|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.
AP Macroeconomics / AP Microeconomics Unit 1 Basic Economic Concepts