Government Price Floor Examples

The federal minimum wage at the end of 2014 was 7 25 per hour which yields an income for a single person slightly higher than the poverty line.

Government price floor examples.

A price floor means that the price of a good or service cannot go lower than the regulated floor. This graph shows a price floor at 3 00. For example many governments intervene by establishing price floors to ensure that farmers make enough money by guaranteeing a minimum price that their goods can be sold for. A price floor is a minimum price enforced in a market by a government or self imposed by a group.

Drawing a price floor is simple. One modern example of a price floor is a minimum wage. Typical examples include minimum wage agricultural support price and price agreed by an oligopoly. You ll notice that the price floor is above the equilibrium price which is 2 00 in this example.

Any employer that pays their employees less than the specified amounts can be prosecuted for a breach of minimum wage laws. If for example a crop had a market price of 3 per unit and a target price of 4 per unit the government would give farmers a payment of 1 for each unit sold. The most common example of a price floor is the minimum wage. Price floors are effective when set above the equilibrium price.

This is the minimum price that employers can pay workers for their labor. For example the uk government set the price floor in the labor market for workers above the age of 25 at 7 83 per hour and for workers between the ages of 21 and 24 at 7 38 per hour. Because of the minimum wage workers cannot accept a wage below a certain amount and employers cannot hire a worker for less than the minimum wage. It tends to create a market surplus.

A minimum wage may apply to a particular sector or all across the board. The opposite of a price ceiling is a price floor which sets a minimum price at which a product or service can be sold. A price floor is the other common government policy to manipulate supply and demand opposite from a price ceiling. In sectors where the equilibrium price determined by supply and demand of labor is below the minimum wage the level of the minimum wage acts as a price floor and the effect is to artificially raise the price of labor.

Perhaps the best known example of a price floor is the minimum wage which is based on the normative view that someone working full time ought to be able to afford a basic standard of living. Farmers would thus receive the market price of 3 plus a government payment of 1 per unit. Simply draw a straight horizontal line at the price floor level. Real life example of a price ceiling in the 1970s the u s.