The market determined price of a good is Rs. 40. The government fixes…

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FLOOR PRICES

For certain goods and services, fall in price below a particular level is not desirable and hence the government sets floors or minimum prices for these goods and services. The government imposed lower limit on the price that may be charged for a particular good or service is called price floor. Most well-known examples of imposition of price floor are agricultural price support programmes and the minimum wage legislation. Through an agricultural price support programme, the government imposes a lower limit on the purchase price for some of the agricultural goods. Similarly, through the minimum wage legislation, the government ensures that the wage rate of the labourers does not fall below a particular level.