Question

Question 18 12 pts Define a price floor and how it affects resource allocation in a market. Give a real world example of a price floor. HTML Editor BIVA - AI E331 x *

Answer 1

Firstly let us know about price floor,price floor means 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.

* Effect of price floor in a resource allocation market,price floor set above the market equilibrium price has several side effect,that may Consumers find they must now pay a higher price for the same product.

* A price floor may lead to market failure if the market is not able to allocate scarce resources in an efficient manner.best example is that minimum wage.

* Now lets takes an example that,

* The owner of body massage shop not be able to charge $40 for a perm when the competing massage are charging in the range between $60 to $80 each, if this means paying her employees less than minimum wage to make a profit.

* The minimum wage is the price that employers pay for labor, and a common example of a price floor. The federal minimum wage is, as of 2015, $7.25 per hour; this is established by the Federal government and applied across the United States.

* States have various, higher minimum wages, but paying an employee less than $7.25 an hour would be illegal. This price floor protects the employees from being exploited.

For some better information ,

* lets Price example take an floors. for better understanding of - As Demand and supply model {for better contienced. Price Po Quantity > QO [03:16) ed as Qc (Quantity] By the above Plotted graph we can say that, Quality supplied = Quality Demand. at a point to. Quantity demand Qd in when so that quantity supplied exceeds quantity demanded, a susplus exists. if Perschace excess agricultural supply, provide payments others to purchase then their will be a benefit.