Answer to Question #298541 in Microeconomics for garg

Question

Suppose the government imposed a price floor on the rental price of labor higher than

equilibrium price. How does this affect the market for labor?

Answer 1

Price floors prevent a price of labor(wages) from falling below a certain level. When government imposes a price floor set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result. 

This usually leads to unemployment which ultimately ends up making people work for less than the desired wage rates as they don't have any more choices.