price floor *** Daus Iulia ***

Price floor expressed as the opposite of the price ceiling A PRICE CEILING is a government-imposed price control, or limit, on how high a price is charged for a product. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive. But there is another situation in which the Government may want to intervene in the market, when he wants to protect the producers. In this case he will adopt a PRICE FLOOR.

PRICE FLOOR The price floor is a minimum price at which the producers are obliged to sell their products. For example in the chocolate industry the minimum price for chocolate is 4 RON. This price is not high enough for the producers to make profit, so the Government impose a MINIMUM PRICE or a PRICE FLOOR of 8 RON, to help them.

HOW THE PRICE FLOOR AFFECTS THE MARKET? Once the PRICE FLOOR is set up the producers will want to produce more and more in order to have profit, but in the same time, the customers will be unhappy with the change, so they will refuse to buy the products.

WHAT IS A SURPLUS? We are talking about the surplus when producers produce more in order to have a bigger profit and the customers buy less because the high price. In other words we have surplus after the Government imposes a higher PRICE FLOOR and the market equilibrium is destroyed.

HOW ABOUT THE MINIMUM WAGE? In this case the Government wants to reduce the unemployment. If the minimum wage goes up, more people will want to work. But in the same time less employers will want to employ. So we have another disequilibrium in the market, we have the quantity supplied (people who want to be employed) greater then the quantity demanded (employers who are willing to employ).

conCLUSIONs To sum up, is better for the market not to be controlled by anyone. The market has an equilibrium and is very difficult to be restored once it was destroyed.