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Explain how a price floor creates a surplus? HOMEWORK HELP?
This is for my macroeconomics class. I have to write a paper on this.. THANKS
1 Answer
- 9 years agoFavorite Answer
it has to be a minimum price control floor price where quantity supplied is greater than quantity demanded. So producers have to lower the cost of their good or service and this will decrease quantity supplied and increase quantity demanded as more consumers are willing and able to buy at lower prices. So the market equilibrium is restored where there is no surplus. The flow on effect of a surplus is that government have to decide what they have to do with the excess stock. A minimum price is placed so that producers don't get paid unreasonably.
Hope its clear enough..
