A price floor is a government-set minimum legal price for a good or service; when set above the equilibrium price (binding), it creates a surplus because quantity supplied exceeds quantity demanded, reducing allocative efficiency and producing deadweight loss.
A price floor is a legal minimum price. Sellers are not allowed to charge less than it, no matter what the market says. The classic examples are the minimum wage (a price floor on labor) and agricultural price supports on crops like corn or milk.
The word that matters on the AP exam is binding. A price floor only changes anything if it sits above the equilibrium price. Once it does, the high price pulls quantity supplied up the supply curve and pushes quantity demanded down the demand curve, so you get a surplus (excess supply). Fewer units actually trade than at equilibrium, which means some mutually beneficial transactions never happen. That lost value shows up on the graph as deadweight loss. Per LO 2.8.A, if the market was already producing the efficient quantity, a binding price floor can only decrease allocative efficiency. A floor set at or below equilibrium is non-binding and the market just ignores it.
Price floors live in Topic 2.8 (The Effects of Government Intervention in Markets) under LOs 2.8.A, 2.8.B, and 2.8.C, where you define the policy, graph it, and calculate the new quantity traded, the surplus, and the change in consumer and producer surplus. But the concept doesn't stay in Unit 2. Topic 6.4 (LO 6.4.A, EK POL-4.A.3) makes the point that binding floors affect prices and quantities differently depending on the market structure, so you have to be ready to drop a floor onto a monopoly graph, not just a competitive one. And Topic 5.4 brings it into factor markets, where a minimum wage in a monopsony labor market produces the famous counterintuitive result that a price floor can actually increase employment. If you can trace a price floor through all three units, you've connected supply and demand, market structures, and labor markets with one tool.
Keep studying AP Microeconomics Unit 5
Price ceiling (Units 2 & 6)
The mirror image. A ceiling is a legal maximum that binds below equilibrium and causes a shortage; a floor is a legal minimum that binds above equilibrium and causes a surplus. Both kill trades and both create deadweight loss, just from opposite directions.
Surplus and Deadweight Loss (Unit 2)
These are the two graph consequences you'll be asked to shade or calculate. The surplus is the horizontal gap between Qs and Qd at the floor price. The deadweight loss is the triangle of trades between the new quantity and equilibrium that no longer happen.
Monopsony labor markets (Unit 5)
The minimum wage is a price floor on labor. In a competitive labor market it causes unemployment (a surplus of workers), but in a monopsony, a well-placed minimum wage flattens the marginal factor cost curve and can raise both the wage and the number of workers hired. This is the exception the exam loves.
Allocative Efficiency (Units 2 & 6)
An efficient market produces where marginal benefit equals marginal cost. A binding floor forces quantity below that point in a competitive market, so per LO 2.8.A, intervening in an already-efficient market can only make allocative efficiency worse.
MCQs hit price floors hard with stems like "If a government imposes a price floor above the equilibrium price, what is the likely market outcome?" Expected answers involve the surplus, the fall in quantity traded, the change in consumer surplus, and even ripple effects on substitutes (a floor on cheese eventually shifting the butter market). On FRQs, government intervention shows up constantly. The 2021 FRQ on Microland's corn market and the 2025 FRQ on a perfectly competitive desk market are exactly the kind of setups where a price control gets layered onto a side-by-side graph. You need to be able to (1) draw a correctly labeled horizontal line above equilibrium, (2) label Qd and Qs and identify the surplus, (3) shade or calculate deadweight loss and surplus changes per LO 2.8.C, and (4) handle the monopsony version, where you show that a minimum wage can increase employment. The single most common point lost is treating a non-binding floor (below equilibrium) as if it changes the market. It doesn't.
Students mix these up because the geometry feels backwards. A binding price FLOOR sits ABOVE equilibrium (a floor you can't fall below), and a binding price CEILING sits BELOW equilibrium (a ceiling you can't rise above). Memory hook: an effective floor is high, an effective ceiling is low. Floors cause surpluses because the high price makes sellers eager and buyers reluctant; ceilings cause shortages because the low price does the opposite. If you draw a floor below equilibrium on an FRQ, it's non-binding and you've drawn nothing.
A price floor is a legal minimum price, and it only matters (is binding) when it's set above the equilibrium price.
A binding price floor creates a surplus because quantity supplied exceeds quantity demanded at the floor price.
The quantity actually traded under a binding floor is the quantity demanded, since buyers are the short side of the market.
A binding floor in a competitive market reduces consumer surplus and creates deadweight loss, lowering allocative efficiency (LO 2.8.A).
The minimum wage is a price floor in the labor market; in a competitive labor market it causes unemployment, but in a monopsony it can raise both wages and employment (Topic 5.4).
Per EK POL-4.A.3, binding floors affect prices and quantities differently in perfect competition versus monopoly, so always check the market structure before you draw.
A price floor is a government-set minimum legal price for a good or service, like the minimum wage or agricultural price supports. When it's set above the equilibrium price, it's binding and creates a surplus plus deadweight loss.
No. A price floor only causes a surplus when it is binding, meaning set above the equilibrium price. A floor at or below equilibrium is non-binding and has no effect on the market, which is a favorite MCQ trap.
A floor is a minimum price that binds above equilibrium and causes a surplus; a ceiling is a maximum price that binds below equilibrium and causes a shortage. Remember it as effective floors are high, effective ceilings are low.
Yes, it's a price floor on labor. In a competitive labor market it creates a surplus of workers (unemployment), but in a monopsony labor market (Topic 5.4) a minimum wage set between the monopsony wage and the competitive wage can increase both wages and employment.
The high price drops quantity demanded below the equilibrium quantity, so trades that would have benefited both buyers and sellers never happen. The value of those lost trades is the deadweight loss triangle between the new quantity and equilibrium on your graph.