pricefloor

A price floor is a government- or group-imposed limit on how low a price can be charged for a product, good, commodity, or service. If the price is low enough, the market price will be above the price floor, and the price floor will not be binding. The market price will equalize and the price will be the equilibrium price. If the price is set above the equilibrium, the price floor will be binding and will cause a surplus.

Price floors are typically enacted to protect producers and suppliers by ensuring that the price of a good or service does not fall below a certain level. This can be particularly relevant in agricultural markets, where governments may set minimum prices for crops to support farmers' incomes. Another common example is the minimum wage, which sets a floor for the hourly rate that employers can pay their workers.

When a price floor is set above the equilibrium price, it creates a situation where the quantity supplied exceeds the quantity demanded. This surplus can lead to unsold goods or a need for government intervention to purchase the excess supply. In the case of a binding minimum wage, it can result in unemployment if employers are unwilling or unable to hire as many workers at the higher mandated wage. The effectiveness and desirability of price floors are subjects of ongoing economic debate, with arguments focusing on their impact on consumer prices, producer welfare, and overall market efficiency.