Price Floor Purpose

Small farmers are very sensitive to changes in the price of farm products due to thin margins.

Price floor purpose. A price floor is the lowest legal price a commodity can be sold at. The most common price floor is the minimum wage the minimum price that can be payed for labor. A price floor or a minimum price is a regulatory tool used by the government. The ostensible purpose of a price floor is to protect suppliers of a given good making sure they receive enough from buyers to compensate for the costs of production.

Perhaps the best known example of a price floor is the minimum wage which is based on the normative view that someone working full time ought to be able to afford a basic standard of living. In this case since the new price is higher the producers benefit. 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. A good example of this is the farming industry.

Price floors are used by the government to prevent prices from being too low. More specifically it is defined as an intervention to raise market prices if the government feels the price is too low. 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. Price floor has been found to be of great importance in the labour wage market.

By observation it has been found that lower price floors are ineffective. A price floor is the lowest legal price that can be paid in markets for goods and services labor or financial capital. One example is the minimum wage a standard to keeps worker compensation at a reasonable level allowing people to make enough to live. They are usually put in place to protect vulnerable suppliers.

Price floors are also used often in agriculture to try to protect farmers.