ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A price floor is a minimum price at which a product or service is permitted to sell. Many agricultural goods have price floors imposed by the government. The most important example of a price floor is the minimum wage. A price ceiling is a maximum price that can be charged for a product or service.

Detailed explanation-2: -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-3: -As the cost of living rises over time, Congress periodically raises the federal minimum wage. Price floors are sometimes called price supports because they support a price by preventing it from falling below a certain level. Around the world, many countries have passed laws to create agricultural price supports.

Detailed explanation-4: -Price ceiling refers to the mechanism by which the price for a good is prevented from rising to a certain level. In contrast to that, price floor is the mechanism by which the price of a good is prevented from falling below a certain level.

Detailed explanation-5: -Price floors are sometimes called “price supports, ” because they support a price by preventing it from falling below a certain level.