How do floor prices impact the market for certain goods?

Floor prices are established by the government to ensure that prices remain above a certain level. When a floor price is set above the equilibrium price in the market, it creates a situation where the minimum allowable price is higher than what would naturally occur based on the forces of demand and supply.

In this scenario, sellers are willing to supply more of the good at this higher price, but consumers may not be willing to purchase as much because the price exceeds their willingness to pay. As a result, there is an excess of goods available — a surplus. The quantity supplied by producers exceeds the quantity demanded by consumers at that floor price, leading to unsold goods accumulating in the market.

This mechanism illustrates how price controls like floor prices can disrupt the natural equilibrium of supply and demand, causing imbalances such as surpluses.