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18 November, 02:39

Explain the effect of a price floor on the quantity of a good.

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  1. 18 November, 03:03
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    To just give a brief background on what a price floor is, a price floor is basically a limit that is set so that the price is not going to be too low. It is basically the minimum price at which a certain product can be set. Now the thing about a price floor is that it may lead to a surplus in the quantity of a good. In other words, if the government mandated a price floor on let's say, a certain raw material, then customers will not want to buy as much anymore because they cannot get it at a lower price anymore. This is especially true if the price floor is higher than the free market equilibrium price.
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