Question

. Define the term “price floor".

                  b. Use supply and demand to identify the free-market equilibrium price and quantity of honey.

                  c. Assume that the government imposes a price floor in the honey market. Illustrate and explain what

                      effects the price floor will have in the honey market.

                  d. What is the purpose of imposing a price floor?

Answer 1

b) 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. By observation, it has been found that lower price floors are ineffective. Price floor has been found to be of great importance in the labour-wage market.

c) The graph and explanation is given.

d)Price floors are government-imposed minimums on the price of certain goods or services. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times.