Define price floor. Explain the implications of price floor. - Vidyadip

Question

Define price floor. Explain the implications of price floor.

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Answer

'Price Floor' is the minimum price fixed by the government below which sellers cannot sell their product.
Since this price is normally set above the equilibrium price, there is excess supply in the market. As the seller may not be able to sell all that he wants to sell, he may illegally attempt to sell the product at a price below the floor price.

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