Price Floor Example

A price floor is the other common government policy to manipulate supply and demand opposite from a price ceiling.

Price floor example. First of all the price floor has raised the price above what it was at equilibrium so the demanders consumers aren t willing to buy as much quantity. Simply draw a straight horizontal line at the price floor level. A few crazy things start to happen when a price floor is set.

You ll notice that the price floor is above the equilibrium price which is 2 00 in this example. The most common example of a price floor is the minimum wage. One modern example of a price floor is a minimum wage.

Price floors are effective when set above the equilibrium price. In sectors where the equilibrium price determined by supply and demand of labor is below the minimum wage the level of the minimum wage acts as a price floor and the effect is to artificially raise the price of labor. This is the minimum price that employers can pay workers for their labor.

The law indicates the least amount that particular individuals in different working classes should be paid on an hourly basis. A minimum wage may apply to a particular sector or all across the board. Normally wages are determined by supply and demand in the labor market.

In this case the supply for employment is greater than the demand of jobs due to the price control that creates a surplus. It is applied throughout the states of america and currently it is set at 7 25 per hour. It tends to create a market surplus.

The minimum wage is a price floor set by the government in order to prevent exploitation of employees. One example of the price floor is government wage law. For example the equilibrium price for labor is 6 00 and the price floor is 7 25.