Micro

Market Equilibrium

Easy

Comprehension:

FLOOR PRICES

For certain goods and services, fall in price below a particular level is not desirable and hence the government sets floors or minimum prices for these goods and services. The government imposed lower limit on the price that may be charged for a particular good or service is called price floor. Most well-known examples of imposition of price floor are agricultural price support programmes and the minimum wage legislation. Through an agricultural price support programme, the government imposes a lower limit on the purchase price for some of the agricultural goods. Similarly, through the minimum wage legislation, the government ensures that the wage rate of the labourers does not fall below a particular level.

Floor prices are meant for the welfare of

Consumers.

Producers.

Both consumers and producers.

Government.

✅ Correct Option: 2

Option 1: Consumers -> Floor prices result in higher prices, which harm consumers.

Option 2: Producers -> Floor prices ensure minimum income by setting a price above equilibrium, protecting producers.

Option 3: Both consumers and producers -> Incorrect, as consumers pay more under floor prices.

Option 4: Government -> Floor prices are not meant for government welfare.

Hence, Option 2: Producers -> Floor prices (or price floors) are minimum prices set by the government above the market equilibrium price. They are designed to protect producers by ensuring they receive at least a certain minimum price for their goods or services. Common examples include minimum wage laws (protecting workers) and agricultural price supports (protecting farmers). While producers benefit, consumers typically face higher prices and reduced quantity in the market. -> correct

Question 41

The market determined price of a good is Rs. 40.The government fixes the minimum price of the good as Rs. 50. Calculate the excess demand/excess supply it will cause if the demand and supply functions are Qd = 200 – p and Qs = 120 + p respectively.

Question 43

Imposition of price floors usually lead to following

Question 44

To be effective, the floor price should be determined

Question 45

The market determined wage rate is $500 per month whereas the minimum wage fixed by the government is $$450 per month. As a result of this government intervention,

Floor prices are meant for the welfare of

Solution

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