Q. 125.0( 1 Vote )
Define Price Floo
Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.
Governments help farmers by setting price floors in agricultural markets. A minimum allowable price set above the equilibrium price is a price floor. With a price floor, the government prohibits a price below the minimum. A price floor that is set above the equilibrium price creates a surplus.
Floor pricing is supported with support price policy. Government purchases surplus products from farmers if they are unable to sell their products in the market.
Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.
The government imposes price ceiling to control the maximum prices that can be charged by suppliers for the commodity. This is done to make the commodities affordable to the general public. However, long term application of a price ceiling can lead to black marketing and unrest in the supply side.
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