What is the price floor?

The price floor is the government limit of the lowest selling price of goods. Such limits are usually part of the industry protection program and maintaining the domestic economy, but may have unintended consequences. Not all goods and commodities have a price floor, because many governments prefer the market to allow prices to determine prices rather than control them through regulations. The markets tend to be self -repair and prices problems often decide themselves before the government must intervene.

In order to work well, the price floor must be above the equilibrium price. This price is a point that naturally reaches the market, reflects the balance between supply, demand and willingness to pay. If the price floor is lower, prices will not be so low and therefore do not serve any real function. When the price floor is higher, it prevents prices from falling below this point. It receives enough buyers to compensate for production costs. One example is the minimum wage, the standard to maintain the compensation of workers toA reasonable level, which allows people to earn enough for life. Agricultural commodities are also subject to the price floor in many regions to avoid situations such as farmers who are plowing crops back to the ground because they cannot get enough to compensate for the costs of their market.

One of the problems is the tendency to create an excess. When regulators determine the price higher than the balance, some people stop buying either because they cannot afford it or are not willing to pay so much. For things like minimal wages, this can lead to unemployment. Understanding goods and unused work can harm the economy and create a ripple. When manufacturers cannot sell all their goods or work, they have less money to buy Things again and the market may begin to decrease to reduce economic activity.

Governments

government can also set the price ceiling, which prevents too high price increases.Like the price floor, the intention is to control costs, but in this case it is available to consumers rather than for the benefit of manufacturers. Ceilings can also cause problems because manufacturers may not be able to maintain production costs below the limit and thus accept loss in sales income.