Economic Definition Of Price Floor

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.

Economic definition of price floor.

A price floor is an established lower boundary on the price of a commodity in the market. The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external. In this case since the new price is higher the producers benefit. 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 or a minimum price is a regulatory tool used by the government. Price floor has been found to be of great importance in the labour wage 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.

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. The most common price floor is the minimum wage the minimum price that can be payed for labor. 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. 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.

However price floor has some adverse effects on the market. Floors in wages. Price floors are also used often in agriculture to try to protect farmers. It will provide key definitions and examples to assist with illustrating the concept.

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. By observation it has been found that lower price floors are ineffective. Price floor is enforced with an only intention of assisting producers. A price floor is the lowest legal price a commodity can be sold at.

But if price floor is set above market equilibrium price immediate supply surplus can. It has been found that higher price ceilings are ineffective. Price ceiling has been found to be of great importance in the house rent market. A price floor must be higher than the equilibrium price in order to be effective.