Do Governments Earn Money On Price Floors

Why are price floors implemented by governments.

Do governments earn money on price floors.

What is the difference between price ceiling and price floor. Price floors are also used often in agriculture to try to protect farmers. Price floors are used by the government to prevent prices from being too low. A price floor is the lowest legal price a commodity can be sold at.

Notice that p f is above the equilibrium price of p e. 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. 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. Types of price floors.

It is a kind of political pressure from suppliers to the government to keep the price high. A price floor that is set above the equilibrium price creates a surplus. 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. Suppose the government sets the price of wheat at p f.

Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity. The most common example of a price floor is the minimum wage. The most common price floor is the minimum wage the minimum price that can be payed for labor. For a price floor to be effective the minimum price has to be higher than the equilibrium price.

Figure 4 8 price floors in wheat markets shows the market for wheat.