9 Give Me An Example Of A Price Floor

Let s consider the example of market for unskilled labor.

9 give me an example of a price floor.

This is to prevent the prices from going too low. When it is set above the equilibrium price there could be an oversupply of service or commodity or a surplus. The price floor is set based on the equilibrium. Important examples include a minimum wage b agricultural price supports and c price agreements reached by an oligopoly.

For example the equilibrium price for labor is 6 00 and the price floor is 7 25. When a market reaches a price floor it results in an excess supply because quantity supplied at the price floor exceeds the quantity demanded. It is the minimum legal price set for a commodity or service by the government or the authority. The federal minimum wage is as of 2015 7 25 per hour.

This is imposed in order to prevent the prices from going very high. This is established by the federal. Simply draw a straight horizontal line at the price floor level. Drawing a price floor is simple.

This graph shows a price floor at 3 00. You ll notice that the price floor is above the equilibrium price which is 2 00 in this example. It is the government imposed maximum price that can be charged for a good or service in the market. Price floors are effective when set above the equilibrium price.

First of all the price floor has raised the price above what it was at equilibrium so the demanders consumers aren t willing to buy as much quantity. A few crazy things start to happen when a price floor is set.