Tax incidence and deadweight loss.
Economic price ceiling and price floor.
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.
A government law that makes it illegal to charger lower than the specified price.
It is legal minimum price set by the government on particular goods and services in order to prevent producers from being paid very less price.
By observation it has been found that lower price floors are ineffective.
Taxation and dead weight loss.
Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.
Consumers must now pay a higher price for the exact same good.
The effect of government interventions on surplus.
In this case there is no effect on anything and the equilibrium price and quantity stay the same.
However prolonged application of a price ceiling can lead to black marketing and unrest in the supply side.
Let s consider the house rent market.
A price floor is an established lower boundary on the price of a commodity in the market.
A price floor is defined as a government intervention to raise market prices if the price is too low.
This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times.
But this is a control or limit on how low a price can be charged for any commodity.
A price ceiling is a legal maximum price but a price floor is a legal minimum price and consequently it would leave room for the price to rise to its equilibrium level.
This is the currently selected item.
Taxation and deadweight loss.
The opposite of a price floor is a price ceiling.
Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.
A price ceiling is essentially a type of price control price ceilings can be advantageous in allowing essentials to be affordable at least temporarily.
In other words a price floor below equilibrium will not be binding and will have no effect.
Here in the given graph a price of rs.
A deadweight loss is a loss in economic efficiency.
Price ceilings and price floors.
However economists question how beneficial.
Like price ceiling price floor is also a measure of price control imposed by the government.
The price ceiling is below the equilibrium price.
Two things can happen when a price floor is implemented.
Price floor has been found to be of great importance in the labour wage market.
