Quantity Exchanged Price Floor

Example breaking down tax incidence.

Quantity exchanged price floor.

In figure 5 5 a price floor the price floor is illustrated with a horizontal line and is above the equilibrium price. At the price floor the quantity demanded is less than quantity supplied which is a surplus situation. Price floors are used by the government to prevent prices from being too low. When quantity supplied exceeds quantity demanded a surplus exists.

Taxes and perfectly elastic demand. Taxation and dead weight loss. Price and quantity controls. The quantity demanded at the price ceiling will equal the quantity.

At the price ceiling there is a surplus of orange juice. The quantity demanded at the price ceiling will equal the quantity supplied. The result is a quantity supplied in excess of the quantity demanded qd. The result of the price floor is that the quantity supplied qs exceeds the quantity demanded qd.

The amount exchanged in the market will be limited by the smaller of the two quantities q d in this case. Minimum wage and price floors. A price floor is the lowest legal price a commodity can be sold at. Consequently at the price floor a larger quantity is supplied than is demanded leading to a surplus.

The effect of government interventions on surplus. When a price floor is set above the equilibrium price as in this example it is considered a binding price floor. Price floors are also used often in agriculture to try to protect farmers. There are units that are socially efficient to trade but aren t traded because their value is less than the price floor.

A price floor is only effective when set above the equilibrium price below left. The intersection of demand d and supply s would be at the equilibrium point e 0. Taxes and perfectly inelastic demand. The most common price floor is the minimum wage the minimum price that can be payed for labor.

A price floor example. However a price floor set at pf holds the price above e 0 and prevents it from falling. Percentage tax on hamburgers.