A price floor affects the price charged and quantity supplied if it is set above the equilibrium price, causing a surplus as the price is higher than consumers are willing to pay and producers are encouraged to supply more of the good.
A price floor will affect both the price charged for a good and the quantity supplied if it is set above the equilibrium price. When a price floor is set above the equilibrium level, it leads to a situation where the price is artificially kept higher than what the market would naturally set, hence affecting the equilibrium of supply and demand.
This governmental intervention results in a higher price for the good than would naturally occur, which tends to decrease the quantity demanded because consumers may find the product too expensive. Simultaneously, the higher price incentivizes producers to supply more of the good than what is demanded at that price point, potentially leading to a surplus.
Examples of Price Floors
Common examples of where price floors might be implemented include agricultural products, where governments wish to ensure farmers can cover the costs of production, or minimum wage laws, which are designed to ensure workers can earn a living wage.
In summary, a price floor set above equilibrium creates a market imbalance by raising the price above what consumers are willing to pay and encouraging more production than the market can bear.