Definition Of A Price Floor

Price floor has been found to be of great importance in the labour wage market.

Definition of a price floor.

A price floor or a minimum price is a regulatory tool used by the government. A price floor is an established lower boundary on the price of a commodity in the market. A lower limit set by a government on the price that can be charged for a product or service. 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.

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. Floors in wages. 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. By observation it has been found that lower price floors are ineffective.

Here is a short video further explaining the concept of a price floor. This control may be higher or lower than the equilibrium price that the market determines for demand and supply. Their objective is usually to. A price floor establishes the minimum legal price for a good or service.

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. Definition of price floor. 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.

In this case since the new price is higher the producers benefit. 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. Price floors protect suppliers and are common for agricultural products.