A price floor is usually fixed

A price floor is a **minimum price** set by the government for a particular good or service. It is designed to ensure that the price is not too low, often supporting producers by maintaining their income at a viable level.

For a price floor to be effective, it is usually fixed **above the equilibrium price.** Here's why:

• **Equilibrium Price** is where the supply of a product equals the demand for that product. It is the point at which the market is said to be in balance.
• When a price floor is set **above the equilibrium**, it means that the price consumers are willing to pay is less than the price producers are willing to accept. This leads to a decrease in quantity demanded by consumers since the price is too high for them.
• Thus, producers end up with **more goods available than what consumers are buying**, creating a **surplus**. This surplus occurs because the set price is prohibiting the market from reaching its natural balance or equilibrium.

Therefore, a price floor is usually fixed **above the equilibrium and causes surpluses.** This allows it to serve its purpose of protecting producer revenues while potentially benefiting certain industry stakeholders.