Price Floor Econ Graph

When a price floor is put in place the price of a good will likely be set above equilibrium.

Price floor econ graph.

The result is that the quantity supplied qs far exceeds the quantity demanded qd which leads to a surplus of the product in the market. Simply draw a straight horizontal line at the price floor level. The graph below illustrates how price floors work. 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.

Price floors can also be set below equilibrium as a preventative measure in case prices are expected to decrease dramatically. This is even more inefficient and costly for the government and society as a whole than the government directly subsidizing the affected firms. 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.

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. A few crazy things start to happen when a price floor is set. They can set a simple price floor use a price support or set production quotas. This graph shows a price floor at 3 00.

Prateek agarwal s passion for economics began during his undergrad. In the price floor graph below the government establishes the price floor at price pmin which is above the market equilibrium.