Assertion (A): Minimum wage legislation is an example of a price floor.
Reason (R): Under minimum wage legislation, the minimum wage is set below the equilibrium wage rate.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) is true but (R) is false.
A minimum wage is a lower limit on the wage, so it is a price floor. Like any floor that matters, it is set above the equilibrium wage.
Assertion (A): Minimum wage legislation is an example of a price floor. — True. Minimum wage legislation and agricultural price support are the best-known examples of a price floor.
Reason (R): Under minimum wage legislation, the minimum wage is set below the equilibrium wage rate. — False. The minimum wage is set above the equilibrium wage rate, so that the wage does not fall below a particular level.
NCERT (2026-27): “5.2.2 Price Floor 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 and the floor is normally set at a level higher than the market-determined price for these goods. Similarly, through the minimum wage legislation, the government ensures that the wage rate of the labourers does not fall below a particular level and here again the minimum wage rate is set above the equilibrium wage rate.” |