A price floor only matters when it is set above the market price: then it stops the price falling.
Why governments set one
Support farmers' incomes
A guaranteed price keeps farms going when harvests and prices swing.
Protect low-paid workers
A minimum wage is a price floor on labour.
Cut a demerit good
A minimum price on alcohol makes cheap, strong drinks more expensive.
The points to remember
- Above the equilibrium price: the floor binds and causes a surplus.
- Below it: the market price is already higher, so the floor does nothing.
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Watch what a floor does to a farm market.
Our example (made-up numbers)
| Free market | With a floor of €8 | |
|---|---|---|
| Price | €6 | €8 |
| Buyers want | 40 | 20 |
| Farmers offer | 40 | 60 |
| Surplus | 0 | 40 |
Animated graph
Watch the graph build step by step in study mode.
Remember it as: A floor above the market price: a good price, but more than anyone wants to buy.
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A minimum wage works the same way in the market for workers.
Animated graph
Watch the graph build step by step in study mode.
Who gains, who loses
Workers who keep their jobs
They earn €8 instead of €6.
Workers who lose out
Firms hire fewer people, so some cannot find work.
Consumers
They pay more for the good, or for goods made by low-paid workers.
Government
It buys and stores surpluses, paid by taxpayers.
Paper 1 asked this in May 2024, as part (b) for 15 marks. May 2026 asked about the stakeholders (15 marks) and why governments set a floor (10 marks).
Using real-world examples, evaluate the view that price floors (minimum prices) should never be used.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
Animated graph
Watch the graph build step by step in study mode.
What the diagram must show
- Axes P and Q; D and S crossing at Pe and Qe.
- Pmin drawn above Pe, with Qd and Qs read off it.
- The surplus (Qs − Qd) labelled.
How the 15 marks are given
| Marks | What your answer needs |
|---|---|
| 13–15 | Theory fully explained, terms right all the way through, balanced evaluation, real examples fully developed to support the argument |
| 10–12 | Theory explained, terms mostly right, evaluation mostly balanced, real examples developed |
| 7–9 | Theory partly explained, some evaluation but one-sided, examples partly developed |
| 4–6 | Theory only described, evaluation superficial, examples only named |
| 1–3 | Theory stated but not relevant, no evaluation |