- A price floor is a government or group-imposed price control or limit on how low a price can be charged for a product. A price floor must be higher than the equilibrium price in order to be effective
Minimum wage is an example of a price floor. A price floor is a set amount of money that an employer is not allowed to play less than.
Example of Price Floor in the real world
Certain industrialized countries and trading blocs have at times introduced price floors for agricultural goods, to protect their agricultural sector. Such price floors have had the effect of encouraging existing producers to increase their levels of production and attracting new firms to enter the market for certain agricultural goods.
The problem of over-production resulting from the imposition of price floors for agricultural produce was dealt by measures such as payments to farmers to leave some fields fallow, effectively paying farmers not to produce. Subsidy.