Minimum Price Controls

Essentially, minimum price controls or price floors, which prohibit exchanges at prices beneath a specified level, create market imbalances that are symmetrically opposite to those of maximum controls. Since there is little or no political advantage to imposing floors that are already at or below the free-market level, they are generally set above that level, as in the graph, where a price floor of 24 hens is imposed in the cows-for-hens market. At the imposed level, the quantity supplied exceeds the quantity demanded, creating an unsold surplus. The surplus intensifies as the floor diverges further from the free-market price.  Next page


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