The global financial crisis of 2007 – 2008 caused great concern for the World Trade Organisation as they felt that countries would persuade their governments to implement price floors in order to support and restore domestic markets. Price floors are regularly employed in a wide spectrum of industries by governments, as an intervention in the free market, in order to protect producers and suppliers. This is achieved by legally setting a minimum price a good can be sold for, above the equilibrium price (Government Intervention in Market Prices 2014).However price floors are associated with many negative economic implications and disadvantages which encouraged economic inefficiency, such as, an increase in production levels causing surplus, misallocation of resources and higher prices for domestic consumers (Rockoff 2008). This essay will seek to discuss and explain the economic efficiency of price floors in relation to the modern finical crisis using real world examples.

Many modern economies are regulated by governments through the implementation of price control methods. This is important for the government to protect its interests, as well as protecting selected producers in the economy from exploitation. One such way in which governments regulate their economy is by applying price floors (Government Intervention in Market Prices 2014). A price floor is the lowest legal price a commodity can be sold for and are targeted at ensuring prices for particular goods aren’t too low (Government Intervention in Market Prices 2014). For a price floor to be binding and effective it must be set above the equilibrium price. This leads to a situation in which there is excess supply of a certain good or service because the market price is prevented from falling to its equilibrium amount (Government Intervention in Market Prices 2014). As a result of the higher price there will