Price Floors

A price floor sets the lowest price a good or input can legally sell for. If the floor sits below where supply and demand already cross, nothing happens: the market was never going to settle below the floor anyway, so it clears right at equilibrium, floor or no floor. The floor only bites, meaning it actually changes behavior, when it is set above equilibrium. At that higher price, the quantity sellers want to supply exceeds the quantity buyers want to buy. That gap is a surplus, and because price cannot legally fall to clear it, it persists.

Take minimum wage. Set above the market wage, more people want jobs at that rate than employers want to hire, which is unemployment: a labor surplus that wages cannot erase because they cannot legally drop. The same logic hits farm price supports. A floor above the equilibrium price for wheat pushes farmers to grow more while shoppers buy less, leaving unsold grain. Sellers who do sell earn more per unit, a gain, but some buyers are priced out entirely, and the trades that would have happened between the floor and the old equilibrium price never occur. That lost mutually beneficial trade is deadweight loss, sitting in the gap between the demand and supply curves at every quantity between what is sold and what would have cleared.

Price floors are the mirror image of price ceilings: a ceiling caps price below equilibrium and causes shortages, a floor sets a minimum above equilibrium and causes surpluses. Both are examples of price controls that block the market's own adjustment, and both shrink total surplus by the same deadweight loss logic, just from opposite directions.