What are the effects of a price floor?

Graph on paper.

When the Government sets a price floor (ie a price below which a good cant be sold) new suppliers will want to enter the market. However, if the price floor is above the equilibrium point (if it's below it doesnt have any effect), there wont be enough demand for the product, compared to how much it's being produced. So there will be a surplus of good produced equal to the space Q.

NB

Related Economics A Level answers

All answers ▸

What is the impact of deflation?


Explain two ways in which central banks use monetary policy to influence the economy.


What is elasticity of demand and how do you work it out?


What are the effects on UK businesses after an increase in fuel prices?