ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A price floor is the lowest legal price that can be paid in a market for goods and services, labor, or financial capital. Perhaps the best-known example of a price floor is the minimum wage, which is based on the normative view that someone working full time ought to be able to afford a basic standard of living.

Detailed explanation-2: -2. When a price ceiling is in place keeping the price below the market price, what’s larger: quantity demanded or quantity supplied? How does this explain the long lines and wasteful searches we see in price-controlled markets? A price ceiling will make quantity demanded larger than quantity supplied.

Detailed explanation-3: -Price ceilings are enacted in an attempt to keep prices low for those who demand the product. But when the market price is not allowed to rise to the equilibrium level, quantity demanded exceeds quantity supplied, and thus a shortage occurs.

Detailed explanation-4: -A price ceiling puts a limit on the most you have to pay or that you can charge for something-it sets a maximum cost, keeping prices from rising above a certain level. A price floor establishes a minimum cost for something, a bottom-line benchmark. It keeps a price from falling below a particular level.