Economic Definition Of Price Floor

Floors in wages.

Economic definition of price floor. Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. If price floor is less than market equilibrium price then it has no impact on the economy. Price floors are also used often in agriculture to try to protect farmers. A price floor is the lowest legal price a commodity can be sold at.

The supposed economic relief of controlled gas prices was also offset by. This lesson will discuss the economic concept of the price floor and its place in current economic decisions. More specifically it is defined as an intervention to raise market prices if the government feels the price is too low. A price floor is an established lower boundary on the price of a commodity in the market.

The opposite of a price ceiling is a price floor which sets a minimum price at which a product or service can be sold. It has been found that higher price ceilings are ineffective. A price floor is a government or group imposed price control or limit on how low a price can be charged for a product good commodity or service. Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.

Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity. Price ceiling has been found to be of great importance in the house rent market. But if price floor is set above market equilibrium price immediate supply surplus can. Price floor is enforced with an only intention of assisting producers.

Price floors are used by the government to prevent prices from being too low. A price floor must be higher than the equilibrium price in order to be effective. By observation it has been found that lower price floors are ineffective. Minimum wage is an example of a wage floor and functions as a minimum price per hour that a worker must be paid as determined by federal and state governments.

A price floor or a minimum price is a regulatory tool used by the government. In this case since the new price is higher the producers benefit. The most common price floor is the minimum wage the minimum price that can be payed for labor. However price floor has some adverse effects on the market.