Binding Vs Non Binding Price Floor

Another way to think about this is to start at a price of 100 and go down until you the price floor price or the equilibrium price.

Binding vs non binding price floor.

Another way to think about this is to start at a price of 0 and go up until you the price ceiling price or the equilibrium price. If the equilibrium price is already lower than the price ceiling the price ceiling is ineffective and called a non binding price ceiling. Consider the figure below. Graphical representation of tax on buyers and tax on sellers.

This is a price floor that is less than the current market price. A price floor or minimum price is a lower limit placed by a government or regulatory authority on the price per unit of a commodity. There are two types of price floors. At the price p the consumers demand for the commodity equals the producers supply of the commodity.

For a binding price floor or ceiling picture them as the opposite picture a house with a floor and a ceiling now the lay the supply and demand graph over it. For example suppose that the prevailing equilibrium price was 100 still and the government set the price ceiling to be 130 the price would still be 100 not 130. The equilibrium market price is p and the equilibrium market quantity is q. If the price floor is under the equilibrium price economic effects of rent control and minimum wage short run long run per unit tax on buyers sellers and market outcome.

This is an example of a non binding or not effective price ceiling. The government establishes a price floor of pf. A non binding price floor is one that is lower than the equilibrium market price. Note that the price ceiling is above the equilibrium price so that anything price below the ceiling is feasible.

The latter example would be a binding price floor while the former would not be binding.