Does Price Floor Encourage Lower Wages

A price floor is the lowest legal price a commodity can be sold at. The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external. If the market was efficient prior to the introduction of a price floor price floors can cause a deadweight welfare loss.

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A good example of how price floors can harm the very people who are supposed to be helped by undermining economic cooperation is the minimum wage.

Does price floor encourage lower wages.

Unfortunately it like any price floor creates a surplus. The most common price floor is the minimum wage the minimum price that can be payed for labor. Legislating a minimum wage is commonly seen as an effective way of giving raises to low wage workers. It may help farmers or the few workers that get to work for minimum wage but it does not always help everyone else.

Price floors are used by the government to prevent prices from being too low. The price floors are established through minimum wage laws which set a lower limit for wages. A price floor is a government or group imposed price control or limit on how low a price can be charged for a product good commodity or service. For example the uk government set the price floor in the labor market for workers above the age of 25 at 7 83 per hour and for workers between the ages of 21 and 24 at 7 38 per hour.

In the end even with good intentions a price floor can hurt society more than it helps. A deadweight loss. A price floor is a legal minimum in which the government does not allow the price of a good or service to fall below the floor buyers caught paying less than the floor price face fines or other forms of punishment. A price floor must be higher than the equilibrium price in order to be effective.

Price floors are also used often in agriculture to try to protect farmers.