Definition Of Price Floor In Economics

Floors in wages.

Definition of price floor in economics.

By observation it has been found that lower price floors 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. This lesson will discuss the economic concept of the price floor and its place in current economic decisions. It will provide key definitions and examples to assist with illustrating the concept.

A price floor or a minimum price is a regulatory tool used by the government. It has been found that higher price ceilings are ineffective. A price floor must be higher than the equilibrium price in order to be effective. The most common price floor is the minimum wage the minimum price that can be payed for labor.

However economists question how beneficial. A legally established minimum price. Price ceiling has been found to be of great importance in the house rent market. 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.

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. More specifically it is defined as an intervention to raise market prices if the government feels the price is too low. 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. Pressured by special interest groups our beloved government is often convinced that the price of a good needs to be kept at a higher level.

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. A price floor is an established lower boundary on the price of a commodity in the market. Price floors are also used often in agriculture to try to protect farmers.

A price ceiling is essentially a type of price control price ceilings can be advantageous in allowing essentials to be affordable at least temporarily. Examples of goods that have had price floors bestowed upon them include farm products and workers. A price floor is the lowest legal price a commodity can be sold at. Term price floor definition.