Define The Term Price Floor

In a highly competitive beauty industry the owner of images beauty salon decides to undercut her local competitors by offering identical services for half the price.

Define the term price floor.

Definition of a price floor. Minimum wage is an example of a wage floor and functions as a minimum price per hour that a worker must be paid as determined by federal and state governments. 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 lower limit set by a government on the price that can be charged for a product or service.

In general price ceilings contradict the free enterprise capitalist economic culture of the united states. The price floor definition in economics is the minimum price allowed for a particular good or service. Yet if the price floor was set at 500 below the equilibrium it would have no effect. Price floor has been found to be of great importance in the labour wage market.

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. This is because if the price floor is set below the equilibrium then the price floor is set below the market value. By observation it has been found that lower price floors are ineffective. The price ceiling definition is the maximum price allowed for a particular good or service.

This control may be higher or lower than the equilibrium price that the market determines for demand and supply. In other words the firm is able to sell at a higher price than the minimum price set. Price floor floor below which prices are not allowed to fall. A minimum wage is an example of a price floor.

Definition of price floor. A price floor is an established lower boundary on the price of a commodity in the market. Floors in wages. A price floor establishes the minimum legal price for a good or service.

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 its aim is to increase companies interest in manufacturing the product and increase the overall supply in the market place. For example the iphone sells for around 699.