how to do the following question:
what are the disadvantages and advantages of price floor?
Dear Student,
The government imposed the lower limit on the price that may be charged for particular goods or services which is called price floor. Because for certain goods and services fall in price below a particular level is not desirable and hence government sets the floors or minimum prices for these goods and services.
Example: Agriculture price support programme, Minimum wage legisltion.
Advantages of Price floor:
1. The floor price is useful as they can use it to deter people from buying certain goods such as alcohol and tobacco.
2. They can intervene on the market and set a minimum price at which the good must be sold at or above. If they do this then suppliers are forced to increase prices and therefore quantity demanded decreases.
3. The government in order to protect the interest of producers announces the minimum price of the commodity to provide reasonable prices to the producers and the farmers for certain agriculture goods and increase their income.
Disadvantages of Price floor:
1. Higher prices for consumers they had to pay more for food.
Regards,
The government imposed the lower limit on the price that may be charged for particular goods or services which is called price floor. Because for certain goods and services fall in price below a particular level is not desirable and hence government sets the floors or minimum prices for these goods and services.
Example: Agriculture price support programme, Minimum wage legisltion.
Advantages of Price floor:
1. The floor price is useful as they can use it to deter people from buying certain goods such as alcohol and tobacco.
2. They can intervene on the market and set a minimum price at which the good must be sold at or above. If they do this then suppliers are forced to increase prices and therefore quantity demanded decreases.
3. The government in order to protect the interest of producers announces the minimum price of the commodity to provide reasonable prices to the producers and the farmers for certain agriculture goods and increase their income.
Disadvantages of Price floor:
1. Higher prices for consumers they had to pay more for food.
2. Higher tariffs necessary on imports. To keep minimum prices.
3. Minimum prices encourage oversupply and are inefficient.