ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Price floors prevent a price from falling below a certain level. When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result.

Detailed explanation-2: -A price floor occurs in a market when government imposes a minimum price that is above equilibrium. The mandated price functions as a “floor” because it prevents the buyers and sellers from negotiating lower prices and reaching equilibrium.

Detailed explanation-3: -The government-imposed lower limit on the price that may be charged for a particular good or service is called price floor. 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.

Detailed explanation-4: -A price floor above the competitive equilibrium price will result in a surplus. A price ceiling above the competitive equilibrium price will result in a surplus. A price ceiling below the competitive equilibrium price will result in a shortage.