What Is A Price Floor What Problem Does It Create

A price floor is the lowest legal price a commodity can be sold at.

What is a price floor what problem does it create. For example many governments intervene by establishing price floors to ensure that farmers make enough money by guaranteeing a minimum price that their goods can be sold for. Price floors are used by the government to prevent prices from being too low. 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.

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. But this is a control or limit on how low a price can be charged for any commodity. For a price floor to be effective the minimum price has to be higher than the equilibrium price. The most common example of a price floor is the minimum wage.

Price floors are also used often in agriculture to try to protect farmers. The floor is the lowest point at which something can be sold without losing money. A price floor must be higher than the equilibrium price in order to be effective. Like price ceiling price floor is also a measure of price control imposed by the government.

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