ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -A price floor creates a surplus which can be costly for producers, it also decreases the consumer surplus significantly. The most common price floor is the minimum wage, which exists in almost every country.

Detailed explanation-3: -Definition: 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. Price floor has been found to be of great importance in the labour-wage market.

Detailed explanation-4: -A price floor is the lowest price that one can legally charge for some good or service. It means equilibrium.

Detailed explanation-5: -A price floor will only impact the market if it is greater than the free-market equilibrium price. If the floor is greater than the economic price, the immediate result will be a supply surplus. As you can see from, a higher base price will lead to a higher quantity supplied.