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Understanding Price Floor and More on this Topic for Conceptual Clarity!

by Apr 4, 2018Homework Answers

Before starting any discussion about price floor which is a vital part of price control techniques, we must get a proper idea of what is called equilibrium rate. Knowledge of equilibrium rate is helpful while solving price floor homework answers.
Equilibrium rate at any point in time is that rate which meets both demand and supply of a particular product in the market at that particular instant. It is the price which is determined to meet the demands of the customers with the supply of the concerned producers.
A price floor is a situation where the price of a commodity is changed either less than or more than that of the equilibrium price that is predetermined by the demand and supply market forces. By detailed case studies, it has been established that lowering of price floor is mostly ineffective in nature. It has been found to be of huge significance in the market of labor-wage.
In other words, the price floor is a set or ascertained amount that has to be paid by the authority or any individual for a particular service or product. Price floor has a lot of importance when it comes to carrying out day to day business.
Studying this topic calls for a lot of concentration and dedication. That is the only way to master. By going through different books and also by following informative blogs online students can produce good price floor homework answers without any additional help.
Price floor in details
It is to be kept in mind that price floor is a government imposed price control technique, and the government has the government itself mostly has the sole authority to impose any alterations on it. According to the law of minimum wage price floor has to be higher than that of the equilibrium in order to be considered effective.
Whenever someone sits to study price floor and its features one must always know that when it is calculated to be less than that of the current market price, that price floor does not bear any direct significance. Hence whenever the market price is found to be below that of the price floor, a surplus is generated. It is mostly levied on the agricultural produce which has proven to be beneficial for the farmers.
These effects of price floor are an essential part of studying price control techniques and their respective attributes. Students must make sure to grasp them completely to acquire high grades. They implement these facts and information on their papers to construct informative price floor homework answers.
Examples of price floor-

  • Minimum wage law. This is the most important example of price floor since by following this as a guideline, labor wages are determined. Any alterations in this will lay direct effect on the daily wages of workers.
  • Price floor supports agricultural price. As discussed earlier this tends to be beneficial for farmers.

Advantages of price floor
Price floor like several other price control techniques has its share of advantages. Most of which includes the maintenance of proper balance between demand and supply of commodities. They offer the right means to acquire that state within the system. In-depth knowledge of this will provide students enough material to prepare price floor homework answers and projects assigned to them. Let us discuss the benefits of price floor-

  • Producers can benefit from price floor. But they are required to know that the curve of their supply is maintained at a relatively elastic nature. This is the only way they will suffer no loss.
  • Consumers are sure to be at the losing end. Since producers have to pay less, consumers will, therefore, have to make up for it and pay higher prices than they used to for the same goods or services.
  • As we know by the introduction of the price floor, laborers and farmers are benefitted the most. It works to reduce the quantity demanded. Thereby reducing pressure on the workers.
  • It simultaneously the quantity that is supplied.

Loopholes of price floor
Like any other market strategy of price control technique, price floor too has its disadvantages. It gives rise to a surplus of laborers. This can be explained with a practical example. Suppose at a given instant the equilibrium rate of labor-wage is observed to be $5 and the price floor is set at $6. This is clearly beneficial for the laborers since it gives an opportunity for them to earn more.
But on the other hand, when the number of laborers working at the equilibrium rate was 50, after determination of the price floor it drops down to 30. Hence 20 workers are laid off due to the hike in the wages.
These evaluations are essential to determine the feasibility of certain techniques. Students must step out of their comfort zones and study these factors to get an enhanced idea about this topic. They can apply the collected facts and key points to their price floor homework answers, and we all know that well-researched papers are always appreciated.
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