Price Floors Flashcards

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What is a price floor?

A legal minimum price set by the government. Sellers cannot charge less.

When it is set above the equilibrium price. Then it is binding.

Quantity supplied rises. Quantity demanded falls. This creates a surplus.

It is excess supply. More is offered than buyers want at that price.

The National Minimum Wage.

To raise producer or worker incomes. Or to cut harmful use of a good.

If it is above the market wage, firms hire fewer workers. More people want jobs than there are jobs.

Buy the surplus. Store it, export it, or ask producers to cut output.

Draw a horizontal line above the equilibrium price. Price cannot fall below it.

A floor at or below the equilibrium price. It has no effect on price or quantity.

Some producers or workers who can sell at the higher price. They get higher income.

Consumers who pay more. Some workers who lose jobs. Taxpayers if the state buys the surplus.