What Is a Price Floor?
The price floor refers to the legal minimum price for the sale of an article, service or resource. The lower price limit is also called support price. The price floor is the minimum price for products in this industry, which is set by the government to support the development of an industry. The lower price limit is always higher than the equilibrium price spontaneously formed by the industry. The minimum wage is an example. If the lower price limit is higher than the equilibrium price, the supply is greater than the demand. [1]
Lower price limit
Right!
- Chinese name
- Lower price limit
- Foreign name
- price floor
- Meaning
- Sell an item
- influences
- Suppliers produce more products in order to lower prices
- The price floor refers to the legal minimum price for the sale of an article, service or resource. The lower price limit is also called support price. The price floor is the minimum price for products in this industry, which is set by the government to support the development of an industry. The lower price limit is always higher than the equilibrium price spontaneously formed by the industry. The minimum wage is an example. If the lower price limit is higher than the equilibrium price, the supply is greater than the demand. [1]
- The effect of the lower price limit when the lower price limit is higher than the equilibrium price
- In the long run, the lower price limit will have the following effects:
- 1. Suppliers produce more products in order to sell products at the lower price limit, but often they cannot sell them all.
- 2. Consumers will reduce purchases of the product and increase purchases of alternative products.
- In the labor market, equilibrium prices are wage levels. In some countries and regions, including China, in order to protect the rights and interests of workers, minimum wages are set. The minimum wage is typical of the lower price limit. The minimum wage is higher than the equilibrium wage, and the labor supply is surplus. The enterprise cannot pay all employees who want to enjoy the minimum wage, and then substitute labor with other productive resources to increase the effective use of capital. The result is a rising unemployment rate, because companies are reluctant to hire illegally even if workers are willing to accept wages below the minimum wage. Moreover, companies are likely to reduce or reduce other benefits that are not measured in money, such as a safe working environment and on-the-job training. [2]