Definition Of A Price Floor

A price floor or a minimum price is a regulatory tool used by the government.

Definition of a price floor.

A price floor establishes the minimum legal price for a good or service. This control may be higher or lower than the equilibrium price that the market determines for demand and supply. A price floor is a minimum price that is set on a good or service usually imposed by the government. In a highly competitive beauty industry the owner of images beauty salon decides to undercut her local competitors by offering identical services for half the price.

Price floor is a price control typically set by the government that limits the minimum price a company is allows to charge for a product or service its aim is to increase companies interest in manufacturing the product and increase the overall supply in the market place. Price floor has been found to be of great importance in the labour wage market. 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 floors may also be implemented through private groups for instance the nfl used to impose a floor on the resale value of tickets. 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. Here is a short video further explaining the concept of a price floor. Definition of a price floor.

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. 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. In this case since the new price is higher the producers benefit.

Definition of price floor. Price floors protect suppliers and are common for agricultural products. Floors in wages.