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Chapter 3: Problem 29

Does a price floor attempt to make a price higher or lower?

Short Answer

Expert verified
A price floor attempts to make a price higher than what the market would naturally dictate, as it is a government-imposed minimum price set above the market equilibrium price. This ensures that suppliers cannot sell their goods or services for less, protecting them from overly low prices that may cause financial distress.

Step by step solution

01

Define Price Floor

A price floor is a government-imposed minimum price, set above the market equilibrium price, that producers cannot sell their goods or services for less. It is typically implemented to protect suppliers from overly low prices that may cause financial distress.
02

Determine the Effect on Prices

Due to the price floor being set above the market equilibrium price, suppliers cannot sell below that limit. This means that the price must be at least equal to the price floor, making it higher than it would be if left to market forces.
03

Answer the Question

In conclusion, a price floor attempts to make a price higher than what the market would naturally dictate.

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