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.
Examples where price ceilings and price floors exist.
Taxes and perfectly elastic demand.
A minimum wage law is the most common and easily recognizable example of a price floor.
However a price ceiling and price floor can also result in some inefficiencies in the marketplace.
Price and quantity controls.
Like price ceiling price floor is also a measure of price control imposed by the government.
Examples of price ceilings include rent control in new york city apartment price control in finland the victorian football league ceiling wage state farm insurance in australia and venezuela s price ceilings on food.
Rent controls are an example of a price ceiling and thus they create shortages of rental housing.
Percentage tax on hamburgers.
When the economy is in a state of flux the government may set minimums and maximums on the price of some goods and services.
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.
These price floors and price ceilings are used to help manage scarce resources and protect buyers and sellers.
The effect of government interventions on surplus.
The federal minimum wage in 2016 was 7 25 per hour although some states and localities have a higher minimum wage.
The opposite of a price ceiling is a price floor which sets a minimum price at which a product or service can be sold.
Price ceilings set the maximum price that can be charged on a product or service in the market.
But this is a control or limit on how low a price can be charged for any commodity.
Price ceilings impose a maximum price on certain goods and services.
It is sometimes the case that rent controls create backdoor arrangements ranging from requirements that tenants rent items that they do not want to outright bribes that result in rents higher than would exist in the absence of the ceiling.
However other price floors exist in any sector that the government is trying to protect such as agricultural goods or other sensitive industries.
For example price ceilings to limit what producers can charge have been proposed in recent years for prescription drugs doctor and hospital fees the charges made by some automatic teller bank machines and auto insurance rates.
Price ceilings and price floors.
Taxes and perfectly inelastic demand.
Example breaking down tax incidence.
A good example of this is the oil industry where buyers can be victimized by price manipulation.
They are usually put in place to protect vulnerable buyers or in industries where there are few suppliers.
The graph below illustrates how price floors work.
A price floor means that the price of a good or service cannot go lower than the regulated floor.
