If the government fixes the price above the equilibrium price, what im

Question

If the government fixes the price above the equilibrium price, what impact will it have on the market?

22 Jul 2024

Answer :

Word Count : 565

If the government sets a price above the equilibrium price, this is referred to as a price floor in economics. A price floor establishes a minimum price for a good or service that sellers cannot legally undercut. To understand its impact on the market, it is essential to analyze the concepts of supply, demand, and the resulting surplus or inefficiencies created.

### Impact on Supply and Demand
In a competitive market, the equilibrium price is determined by the intersection of the supply and demand curves. When the government enforces a price floor above this equilibrium level:
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