A price floor is a government-imposed minimum legal price for a good or service; when set above the equilibrium price (a binding floor), quantity supplied exceeds quantity demanded, creating a surplus and deadweight loss (AP Micro Topic 2.8).
A price floor is a law that says the price of something cannot fall below a certain level. The government usually does this to protect sellers, like farmers getting a guaranteed crop price or workers getting a minimum wage. The catch is what happens on the graph. If the floor is set above the equilibrium price, it's binding. At that artificially high price, producers want to sell a lot (quantity supplied rises along the supply curve) but consumers buy less (quantity demanded falls). The gap between them is a surplus, and the units that no longer get traded create deadweight loss.
Here's the part that catches people. If the floor is set below equilibrium, it does nothing. The market price was already above the legal minimum, so trade continues at equilibrium. The AP exam loves testing this with numbers, like a $4.00 floor in a wheat market with a $5.00 equilibrium. A non-binding floor changes nothing. Think of a price floor like a limbo bar the price can't go under. If the bar is on the ground and the price is standing upright, nobody notices the bar.
Price floors live in Unit 2 (Supply and Demand), Topic 2.8: The Effects of Government Intervention in Markets. They hit all three learning objectives there. You have to define the intervention (AP Micro 2.8.A), explain with a graph how it changes consumer and producer behavior (AP Micro 2.8.B), and calculate the new market outcomes, like the size of the surplus or the deadweight loss, from a graph or table (AP Micro 2.8.C). The essential knowledge gives you the big punchline to remember: if a market was already producing the efficient quantity, government price controls can only decrease allocative efficiency. Price floor graphs are one of the most reliable Unit 2 questions on both the MCQ and FRQ sections, so this is a skill worth over-practicing.
Keep studying AP Microeconomics Unit 2
Price Ceiling (Unit 2)
The mirror image. A ceiling is a maximum price that binds when set BELOW equilibrium and causes a shortage; a floor is a minimum that binds when set ABOVE equilibrium and causes a surplus. Same logic, flipped. If you can draw one, you can draw the other.
Minimum Wage (Unit 2)
The minimum wage is just a price floor in the labor market. The 'price' is the wage, the 'sellers' are workers, and the surplus of labor is unemployment. It's the AP's favorite real-world application of a binding floor.
Deadweight Loss (Unit 2)
A binding floor blocks mutually beneficial trades between equilibrium quantity and the new (lower) quantity demanded. The lost total surplus from those missing trades is the deadweight loss triangle you'll be asked to shade or calculate.
Equilibrium Price (Unit 2)
Equilibrium is your reference point for everything here. The only question that matters first is whether the floor sits above or below equilibrium, because that single comparison decides whether anything in the market actually changes.
Price floors show up constantly in Unit 2 multiple-choice questions, usually in two flavors. The first asks for the direct result of a binding floor (answer: a surplus, since quantity supplied exceeds quantity demanded). The second is the trap version, where the floor is set below equilibrium, like a $4.00 floor against a $5.00 equilibrium wheat price. The correct answer is that the floor is non-binding and the market stays at equilibrium. Always check binding vs. non-binding before doing anything else. On FRQs, expect to draw a correctly labeled supply-and-demand graph, place the floor line above equilibrium, label quantity demanded and quantity supplied at the floor price, identify the surplus as the horizontal gap between them, and shade or compute deadweight loss. Calculation questions (LO 2.8.C) may give you a table of prices and quantities and ask you to find the surplus in units or the change in consumer and producer surplus.
The names feel backwards, which is exactly why the exam tests this. A binding price FLOOR sits ABOVE equilibrium (the price can't fall down to equilibrium) and creates a SURPLUS. A binding price CEILING sits BELOW equilibrium (the price can't rise up to equilibrium) and creates a SHORTAGE. Memory trick: an effective floor is drawn high and an effective ceiling is drawn low, the opposite of a real room. If a 'floor' is drawn below equilibrium or a 'ceiling' above it, the policy is non-binding and nothing changes.
A price floor is a government-imposed minimum legal price, and it only affects the market when it is set above the equilibrium price.
A binding price floor creates a surplus because the high price increases quantity supplied while decreasing quantity demanded.
A price floor set below the equilibrium price is non-binding, so the market keeps trading at the original equilibrium price and quantity.
Binding price floors create deadweight loss because trades that would have benefited both buyers and sellers no longer happen.
The minimum wage is a price floor in the labor market, and when it binds, the resulting surplus of workers is unemployment.
Per the CED, government price controls in an already-efficient market can only decrease allocative efficiency, never increase it.
A price floor is a government-set minimum legal price for a good or service, like agricultural price supports or the minimum wage. It's covered in AP Micro Topic 2.8 (Effects of Government Intervention in Markets) under learning objectives 2.8.A, 2.8.B, and 2.8.C.
A surplus. A binding floor holds the price above equilibrium, so quantity supplied exceeds quantity demanded. Shortages come from binding price ceilings, not floors. Mixing these up is one of the most common Unit 2 mistakes.
No. A floor only matters if it's binding, meaning set above the equilibrium price. If the equilibrium price for wheat is $5.00 and the government sets a $4.00 floor, the floor is non-binding and the market stays at equilibrium with no surplus.
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. On a graph, an effective floor is drawn above the intersection and an effective ceiling below it.
Yes, it's the classic example. The minimum wage sets a legal minimum price for labor. When it's above the equilibrium wage, quantity of labor supplied exceeds quantity demanded, and that surplus of workers is unemployment.