Which of the following is incorrect with reference to the imposition of a price floor for a good?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → The floor is normally set at a level lower than the market-determined price for these goods.
A price floor is the minimum price set by the government above the equilibrium (market-determined) price to protect producers from very low prices. For example, the Minimum Support Price (MSP) for agricultural products ensures that farmers receive a fair return even if market prices fall. If the floor were set below the equilibrium price, it would have no effect on the market.