Asked by: Alpha Oemichen
asked in category: General Last Updated: 9th January, 2020

What is an effective price floor?

A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. 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, it must be set above the equilibrium price.

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Likewise, what is an example of a price floor?

A price floor in economics is a minimum price imposed by a government or agency, for a particular product or service. Common examples of price floors are the minimum wage, the price that employers pay for labor, currently set by the federal government at $7.25 an hour.

are price floors good or bad? Though price floors reduce market efficiency, that doesn't always make them bad policy. Governments impose a price floor because they judge the policy to have an effect more valuable than the consequences. A local government, for example, might set a price floor on parking fees in a municipal area.

Beside this, what is an effective price ceiling?

Price Ceilings. A price ceiling occurs when the government puts a legal limit on how high the price of a product can be. In order for a price ceiling to be effective, it must be set below the natural market equilibrium. When a price ceiling is set, a shortage occurs.

Who benefits from a price floor?

Price floors such as minimum wage benefits consumers by ensuring reasonable pay. Price ceilings such as rent control benefit consumers by preventing sellers from over charging which, in the long run, will ensure viable and afforadle homes.

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