Price Floor Econ Graph

The graph below illustrates how price floors work.

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. 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. Simply draw a straight horizontal line at the price floor level. This is even more inefficient and costly for the government and society as a whole than the government directly subsidizing the affected firms.

Price floors can also be set below equilibrium as a preventative measure in case prices are expected to decrease dramatically. They can set a simple price floor use a price support or set production quotas. Drawing a price floor is simple. A few crazy things start to happen when a price floor is set.

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

This graph shows a price floor at 3 00. 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.