Log out Go to App
Go to App

Learning Materials

Features

Discover

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, not lower, by setting a minimum price above the market equilibrium to protect producers or workers' interests and ensure fair minimum compensation.

Step by step solution

01

Introduction to Price Floor

A price floor is a minimum price set by a government or regulatory authority below which the market price cannot legally go. It is usually set to ensure a fair minimum payment to producers/ workers, primarily in markets prone to exploitation or low compensation.
02

Price Floor Impact

By setting a minimum price, a price floor prevents the market price from falling below that level. It is essential to highlight that the price floor is effective only if it is set above the market equilibrium price, where the quantity supplied equals the quantity demanded. In this case, the price floor maintains a price higher than the market would otherwise determine.
03

Conclusion

Based on the understanding of price floor, we can conclude that a price floor attempts to make a price higher, not lower. It aims to protect the interests of producers or workers by ensuring a minimum compensation not to be undermined by market forces.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.

Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?

Name some factors that can cause a shift in the demand curve in markets for goods and services.

What is producer surplus? How is it illustrated on a demand and supply diagram?

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher price?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free