Home > categories > Construction & Real Estate > Other Flooring > why do price floors lead to surpluses?
Question:

why do price floors lead to surpluses?

why do price floors lead to surpluses?

Answer:

An price floor will lead to a surplus because even though the firm would like to lower prices to match the equilibrium price it cannot do so legally. For example, if I am a farmer selling corn that costs 100 dollars to produce the simple market clearing price would be 100 dollars. At a price of 100 dollars the quantity supplied equals the quantity demanded. Now the government hears farms are going out of business. It is in the governments best interest to ensure farms do not close so they put a price floor of 120 dollars into place. Now the farm can sell their corn at a minimum of 120 dollars. Remember the cost to produce the crop = 100. If it is sold at a minimum of 120 then there will be a 20 dollar surplus.
Price floor is a floor that you mop, for a price, typically in McDonalds restaurant. As a result of working there, you eat more food than you need, and you end up with surplus weight.

Share to: