A Price Floor Example: European Wheat Prices

Without government intervention, the price of wheat would adjust so that quantity supplied equals quantity demanded at the equilibrium E₀, with price P₀ and quantity Q₀.

A price support keeps the price above the market equilibrium, at the price Pf shown by the horizontal line. At Pf, farmers supply Qs but buyers only want Qd. The quantity supplied exceeds the quantity demanded, so there is excess supply, a surplus. If the government buys up that surplus, farmers benefit from the floor, but taxpayers and consumers of food pay the cost.

Lower the floor below P₀ and it stops binding: the market simply clears at E₀.