Binding Versus Non Binding Price Floor

A non binding price floor is one that is lower than the equilibrium market price.

Binding versus non binding price floor. The equilibrium market price is p and the equilibrium market quantity is q. This video explains and shows how a non binding price floor becomes ineffective. Consider the figure below. 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.

This is a price floor that is less than the current market price. 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. 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 you get confused as to where you draw the line for a price floor or ceiling and whether its binding or unbinding then here is a good way to remember them refer to the picture below.

The latter example would be a binding price floor while the former would not be binding. This is an example of a non binding or not effective price ceiling. A price floor is a form of price control another form of price control is a price ceiling. There are two types of price floors.

Note that the price ceiling is above the equilibrium price so that anything price below the ceiling is feasible. 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. 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. For an unbinding price ceiling and floor picture a house with a floor and a ceiling now lay the supply and demand graph over it.

At the price p the consumers demand for the commodity equals the producers supply of the commodity. Binding and non binding price floor. The government establishes a price floor of pf.