price floors

price floors - 5.c The Effects of Price Floors A price...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
5.c The Effects of Price Floors A price floor is a base price at which an item can be sold. If a price floor is imposed below the natural equilibrium price, it is not binding. A price floor that is not binding has no affect on the current price of a good. On the other hand, if the price floor is set above the equilibrium price, it is said to be binding, resulting in a surplus. Figure 5.c.1 demonstrates this with candy bars. Figure 5.c.1 Without free trade interference, the natural market price for a candy bar is $1.00. When the government imposes a price floor of $1.50, the quantity supplied (17) exceeds the quantity demanded (5) by 12 units, resulting in a surplus of candy bars.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Figure 5.c.2 The natural market price for labor is $5. A minimum wage of $7 decreases the employer’s surplus (CS-consumer surplus) by the areas B and C. Meanwhile it increases the employees’ surplus (PS-producer surplus) by the area B and decreases it by the area E. Since the labor demanded decreased from 100 to 70, 30 people lost
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/05/2010 for the course ECON 303 taught by Professor Cheng during the Spring '07 term at USC.

Page1 / 4

price floors - 5.c The Effects of Price Floors A price...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online