Price Floors

Imagine that merch season has rolled around for your Greek Life chapter. Everyone's wanting to secure their chapter hoodie and rep their letters on campus!

However, your president has found himself in a tough situation. Formal weekend in Gatlinburg is coming up and he needs enough money for the down cabin payment in the next few weeks.

Although the cost of these hoodies is typically $50, your president has stated no one can pay less than $60 per hoodie. He hopes to pocket this extra change to get the best cabins for the chapter, but in doing so has set a price control that has manipulated the market. 

price control is an attempt to set, or manipulate, prices through government regulations on the market.

The two types of price controls we'll work with are price floors and price ceilings. In this case, we're working with a price floor.

Price floors explained

In this situation, the new price of $60 for the hoodie is a price floor (a.k.a. the lowest price a company can charge for a product).

A price floor creates a legally established minimum price for a good or service imposed when the market price is deemed too low.

Represented visually, these hoodies have an equilibrium price of $50...

...but the president has imposed a floor of $60.

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