Microeconomics · free preview
Price Floors
A binding price floor holds the legal price above equilibrium, creating a surplus whose sellers compete to escape, paying with wasted effort and deadweight loss.
1. The law of the floor
The law of the floor
2. Who holds the surplus
Who holds the surplus
3. The minimum wage debate
The minimum wage debate
4. Floors that quietly work
Floors that quietly work
5. The surplus from a floor
Honey demand is Qd = 120 - 2P, supply Qs = 3P, equilibrium 24 and 72. A binding price floor at 30 dollars is imposed. What happens?
6. Competition among sellers
A binding floor prevents sellers from cutting price. What margins does their competition move to instead?
7. The excess supply
Under a price floor of 30 dollars, quantity supplied is 90 jars and the demand curve is Qd = 120 - 2P. Compute the unsold surplus in jars and write the number.
8. The floor that does nothing
The same honey market clears at 24 dollars. Parliament sets a minimum legal price of 20 dollars. What happens?
9. Competing on every margin but price
A binding floor prevents sellers from cutting price. Where does their competition go instead?
10. Surplus at 27
Honey demand is Qd = 120 - 2P and supply Qs = 3P, and a binding floor sets the price at 27 dollars. Compute the excess supply in jars, and write the number.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free