A floor binds above equilibrium
The legal minimum prevents price from falling enough to clear the market. A binding floor produces excess supply. Agricultural price supports can create unsold output unless government purchases the surplus or production adjusts. A minimum wage is a price floor in a competitive labor market: workers supply more labor while employers demand less, creating a […]
A ceiling binds below equilibrium
The legal maximum prevents price from rising enough to clear the market. At the controlled price, quantity demanded exceeds quantity supplied. Some buyers who would have purchased at equilibrium obtain the good at a lower price, but others cannot purchase it at all. Sellers supply fewer units, and mutually beneficial trades disappear. A ceiling above […]
