Price Floors Benefit Producers

Price floors are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market with too low of a price and thus their producers deserve some assistance.

Price floors benefit producers.

Government enforce price floor to oblige consumer to pay certain minimum amount to the producers. Sellers and producers of labor benefit from legal minimum wages. More specifically it is defined as an intervention to raise market prices if the government feels the price is too low. Price floors are only an issue when they are set above the equilibrium price since they have no effect if they are set below market clearing price.

They have been used in agriculture to increase farmers income. Producers and sellers benefit from price floors. Governments put in place price floors in markets with inelastic demand and very low prices naturally. Government set price floor when it believes that the producers are receiving unfair amount.

In this case since the new price is higher the producers benefit. Price floor is enforced with an only intention of assisting producers. For instance if a government wants to encourage the production of coffee beans it may establish one in the coffee bean market. Price floor are used to give producers a higher income.

A maximum price means firms are not allowed to set prices above a certain level. Increase tax revenue for governments. Producers favor price floors because when binding price floors increase price above the equilibrium and may increase producer surplus. However price floor has some adverse effects on the market.

A black market is a market in which buying and selling occur at prices that violate government price regulations. If price floor is less than market equilibrium price then it has no impact on the economy. They are used to increase the income of farmers producing goods it is obvious in this situation that by incresaseing the price above equilibrum governemt is assisting the producers and not the consumers a higher price is going to mean a higher income for the producer. Consumers and spenders benefit from price ceilings.

However minimum prices lead to over supply and mean the government have to buy surplus. Price ceilings are primarily targeted to help while price floors generally benefit. The most notable example is minimum wage.