What is a common consequence of a price floor in a market?

A common consequence of a price floor in a market is excess supply. A price floor is a minimum price set by the government above the market equilibrium price, which means that sellers are not allowed to sell their goods for less than this set price. When a price floor is implemented, the intention is often to protect producers by ensuring they receive a minimum income for their products.

However, this can lead to excess supply because at the higher price set by the floor, the quantity supplied by producers often exceeds the quantity demanded by consumers. Buyers are not willing to purchase as much of the product at the inflated price, leading to a surplus in the market. This situation can create imbalances where producers have more goods available than consumers are willing to buy, resulting in waste or unsold inventory.

This contrasts with other outcomes; for instance, while one might expect increased demand with lower prices, a price floor raises prices, which typically dampens demand rather than increasing it. Similarly, consumer welfare may actually decline as consumers face higher prices without the ability to purchase as much as they would at equilibrium. Decreased production costs are unrelated to the concept of a price floor, as the floor itself does not directly address production expenses and may not lead to cost reductions.