Price floor
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Price floor is a price level set by government that prohibits a price from falling below a certain level. It is rare to have a price floor unless there is a severe depression or crisis in an industry. More often government will use a subsidy to help suppliers who suffer from decreases in price. To be effective price floor have to be above the equilibrium, as shown in the image. There is no effect on the price or quantity if the price floor is below the equilibrium.
- The most common example of a price floor in the United States is minimum wage.