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Define price floor. Explain the impications of price floor OR Market of a good is in equilibrium. Demand for the good 'decreases'. Explain the chain of effects of this change

Answer» <html><body><p></p>Solution :Price Floor' is the minimum price fixed by the government below which sellers cannot <a href="https://interviewquestions.tuteehub.com/tag/sell-1200244" style="font-weight:bold;" target="_blank" title="Click to know more about SELL">SELL</a> their product. Since this price is normally set above the equilibrium price, there is excess supply in the market. As the <a href="https://interviewquestions.tuteehub.com/tag/seller-1200249" style="font-weight:bold;" target="_blank" title="Click to know more about SELLER">SELLER</a> may not be able to sell all that he wants to sell, he may <a href="https://interviewquestions.tuteehub.com/tag/illegally-7382397" style="font-weight:bold;" target="_blank" title="Click to know more about ILLEGALLY">ILLEGALLY</a> attempt to sell the product at a price below the floor price. <br/> OR <br/> Market of a good is in equilibrium. If the demand for the good decreases, this creates an excess supply of the good at the existing price in the market. <br/> `**` The excess supply creates competition among sellers, resulting in fall in price, because sellers will not be able to sell all that they want to sell at the existing price. <br/> `**` Fall in price leads to <a href="https://interviewquestions.tuteehub.com/tag/rise-1189674" style="font-weight:bold;" target="_blank" title="Click to know more about RISE">RISE</a> in demand and fall in supply. <br/> `**` These changes continue <a href="https://interviewquestions.tuteehub.com/tag/till-709848" style="font-weight:bold;" target="_blank" title="Click to know more about TILL">TILL</a> the market reached new equilibrium.</body></html>


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