Price floor (shortage in demand, excess in supply)

Question 1

What is a price floor

Answer 1

When the government authorities stipulates a minimum price, this is termed a price floor

Question 2

What are price floors used for

Answer 2

The use of price floors, though helpful in maintaining or improving the standard of living of persons in society tends to result in market disequilibrium where the quantity supplied is more than the quantity demanded

Question 3

In the care of the labor market what does a minimum wage create

Answer 3

Unemployment as the quantity supplied of labor exceeds the quantity demanded of labor

Question 4

What does the graph say

Answer 4

The consumers and producers would agree to the equilibrium price of $5, the government thinks that the price is too low for the producers, hence they fix the price at $8. This is known as the minimum price or price floor. Consequently, the q/s will be greater than the q/d leading to surpluses.

Question 5

Where are price floors often used

Answer 5

In labor markets to maintain the income level of workers at an acceptable level. This is referred to as minimum wage