What are the effects of a price floor?

Graph on paper.

When the Government sets a price floor (ie a price below which a good cant be sold) new suppliers will want to enter the market. However, if the price floor is above the equilibrium point (if it's below it doesnt have any effect), there wont be enough demand for the product, compared to how much it's being produced. So there will be a surplus of good produced equal to the space Q.

Answered by Nicola B. Economics tutor

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