Price Floor

Price Floor

Scenario 2:

A price floor is a specific amount which is imposed by the government on services rendered or products.  From this amount, the governments do not permit the cost of products to fall beneath the floor.  Governments force the price floor on compensation, also known as the minimum wage that is permitted by the law to make it illicit for the owners of the businesses to pay their employers lesser amount as specified in an hour.  Generally, this is a well-known example used in indicating the meaning of the price floor.   Setting up the price floor by the government has some implication on wages.  When price floor is too high, it causes an increase in the number of laborers requesting for lower-skill vacancies as the jobs considered being quality decreases.  The employers, in this case, would prefer not to pay the laborers a high minimum wage as permitted by law which will leave some positions unfilled.

Scenario 4

Inelasticity of demand occurs when there is a slight response to the quality demanded on the change in price.  Double taxation by the government on gasoline causes an increase in tax revenue because the gas, in this case, is considered to be inelastic demand.  Considering this factor, people will continue to consume gasoline in their day to day activities such as commuting from and to work as well as running other businesses which require the use of a car.  However, in the long run, these people might consider other methods which will help them run their day to day activities due to increase taxation, causing an increase in price.  Over time, such chosen methods will cause a decrease in revenue collection.

Summary

• Setting up high minimum rates by the government may impact the economy negatively as it forces the business owners to recruit low skilled personnel to avoid the legal set minimum amount.
• Double taxation by the government cause an increase in revenue collection
• Prices cause a slight change on demand which is considered to be inelastic