Define Price Floor And Give An Example

Definition of price floor.

Define price floor and give an example.

A price floor is the other common government policy to manipulate supply and demand opposite from a price ceiling. Generally speaking price floor gives a different perspective to various parties of the economy. Yet if the price floor was set at 500 below the equilibrium it would have no effect. For example the iphone sells for around 699.

A price floor means that the price of a good or service cannot go lower than the regulated floor. A price ceiling is the maximum price for a particular product or service. 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. A price floor is a minimum price enforced in a market by a government or self imposed by a group.

In other words the firm is able to sell at a higher price than the minimum price set. The price floor is the minimum price. 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. Define price ceiling and price floor and give an example of each.

Demand curve is generally downward sloping which means that the quantity demanded increase when the price decreases and vice versa. Common examples of price floors are the minimum wage the price that employers pay for labor currently set by the federal government at 7 25 an hour. By observation it has been found that lower price floors are ineffective. Similarly a typical supply curve is.

Which leads to a surplus. Which leads to a shortage. Price floors takes place when the prices set by the government exceed equilibrium prices as such determination do not give any effect market even if they set less than clearing prices of the market. Price floor has been found to be of great importance in the labour wage market.

A minimum wage law is the most common and easily recognizable example of a price floor. This control may be higher or lower than the equilibrium price that the market determines for demand and supply.