Price Floor Econ Graph

Price regulations are governmental measures dictating the quantities of a commodity to be sold at a specified price both in the retail marketplace and at other stages in the production process.

Price floor econ graph. These regulations act as control measures or emergency economic measures in the case of imperfect competition to prevent probable market failures. A few crazy things start to happen when a price floor is set. The graph below illustrates how price floors work. Price floors can also be set below equilibrium as a preventative measure in case prices are expected to decrease dramatically.

Price supports sets a minimum price just like as before but here the government buys up any excess supply. A price floor is an established lower boundary on the price of a commodity in the market. This graph shows a price floor at 3 00. Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity.

You ll notice that the price floor is above the equilibrium price which is 2 00 in this example. When a price floor is put in place the price of a good will likely be set above equilibrium. This is even more inefficient and costly for the government and society as a whole than the government directly subsidizing the affected firms. Drawing a price floor is simple.

Prateek agarwal s passion for economics began during his undergrad. Simply draw a straight horizontal line at the price floor level.