Price Lining Is Setting A Price Floor

Drawing a price floor is simple.

Price lining is setting a price floor. An approach that attempts to reflect how the firm wants consumers to interpret its products relative to the competitor s offerings. A price floor is the lowest price that one can legally charge for some good or service. A price floor could be set below the free market equilibrium price. Like price ceiling price floor is also a measure of price control imposed by the government.

Types of price floors. This graph shows a price floor at 3 00. For example setting a price close to a competitor s price signals to consumers that product is similar whereas setting the price much higher signals greater features better quality or some other valued benefit. With price lining a price floor and a price ceiling are set for each product category and then selected price points are set within the range more example sentences price lining can also make shopping easier for consumers and sellers because there are fewer prices to consider and handle.

It is legal minimum price set by the government on particular goods and services in order to prevent producers from being paid very less price. For a price floor to be effective it must be set above the equilibrium price. In this case the floor has no practical effect. The intersection of demand d and supply s would be at the equilibrium point e 0.

Simply draw a straight horizontal line at the price floor level. 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. A price floor is an established lower boundary on the price of a commodity in the market. In the first graph at right the dashed green line represents a price floor set below the free market price.

Price lining is setting a price floor and a price ceiling for a line of products and then setting price points in between to represent differences in quality. The government has mandated a minimum price but the market already bears and is using a higher price. The result of the price floor is that the quantity supplied qs exceeds the quantity demanded qd. Perhaps the best known example of a price floor is the minimum wage which is based on the view that someone working full time should be able to afford a basic standard of living.

A price floor example. The methods used to develop pricing strategies are cost based pricing competitor based pricing and value based pricing. But this is a control or limit on how low a price can be charged for any commodity. A price ceiling is a government or group imposed price control or limit on how high a price is charged for a product commodity or service governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive.