A price floor is an established lower boundary on the price of a commodity in the 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. 1. Binding Price Floor
What is an example of a price floor?
A common example seen in everyday life is the minimum wage. A price floor is a government-imposed minimum price set above the equilibrium price to support producers and ensure they receive a minimum income for their products.
How do price floors work?
Almost all economies in the world set up price floors for the labor force market. It is usually a binding price floor in the market for unskilled labor and a non-binding price floor in the market for skilled labor. The price floors are established through minimum wage laws, which set a lower limit for wages.
