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- PREV DEFINITIONPrice CeilingPrice ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.Read More
- NEXT DEFINITIONPrice MechanismPrice mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein.Read More
What is 'Price Floor'
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.
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Description: Minimum wage laws have been passed in various countries to determine the minimum wages to be paid to the worker. Minimum wages are formulated from the demand-supply curve of labour. This helps the government ensure higher wages and a good standard of living for the workers. But this has a flip side too. Price floor leads to a lesser number of workers than in case of equilibrium wage. This is shown by the diagram below.
Equilibrium wage rate is Rs. 3. The price floor is determined at Rs.4, which is good for workers, who will earn more than before. But the flip side is that while at equilibrium there were 30 workers, after the price floor there are only 20 workers. Thus 10 workers have been laid off. At a wage of Rs. 4 we see a gap of 20 workers (40 workers are willing to work but only 20 workers get work), thus giving rise to a surplus of workers.
- PREV DEFINITIONPrice CeilingPrice ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply.Read More
- NEXT DEFINITIONPrice MechanismPrice mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein.Read More
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