explain the concept of a price floor
A price floor is a government- or group-imposed limit on how low a price can be charged for a product. [ A price floor must be greater than the equilibrium price in order to be effective.
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. ]
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jeifunk|Points 6527|
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Asked 9/14/2012 5:00:17 AM
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