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A price floor is a government- or group-imposed limit on how low a price can be charged for a product. In order for a price floor to be effective, it must be greater than the equilibrium price. Effectiveness of price floorsAn ineffective price floor, below equilibrium price.A price floor can be set below the free-market equilibrium price. In the first graph at right, the dashed green line represents a price floor set below the free-market price. In this case, the floor has no practical effect. The government has mandated a minimum price, but the market already bears a higher price. An effective price floor, causing a surplus (supply exceeds demand).By contrast, in the second graph, the dashed green line represents a price floor set above the free-market price. In this case, the price floor has a measurable impact on the market. It ensures prices stay high so that product can continue to be made. Effect on the marketA price floor set above the market equilibrium price has several side-effects. Consumers find they must now pay a higher price for the same product. As a result, they reduce their purchases or drop out of the market entirely. Meanwhile, suppliers find they are guaranteed a new, higher price than they were charging before. As a result, they increase production. Taken together, these effects mean there is now an excess supply (known as a surplus) of the product in the market. In order to maintain the price floor over the long term, the government may need to take action to remove it. From Wikipedia under the
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Q. How is rent control beneficial? What is the difference between a price ceiling and a price floor? Asked by excursion59 - Fri Oct 30 11:38:44 2009 - - 1 Answers - 0 Comments A. rent control is a price ceiling, which prevents prices from getting above a certain level. it is an attempt to keep rent prices low (or at least relatively low). a price floor says that firms have to charge at least a certain amount for each unit of a good. Answered by a2gal - Fri Oct 30 11:48:52 2009 From Yahoo Answer Search: "Price floor" |
