Binding Price Floor Diagram

A price floor is the lowest price that one can legally charge for some good or service.

Binding price floor diagram. This can be depicted in a supply and demand diagram as such. A price floor is an established lower boundary on the price of a commodity in the market. Perhaps the best known example of a price floor is the minimum wage which is based on the view that someone working full time should be able to afford a basic standard of living. A price floor is the lowest legal price that can be paid in markets for goods and services labor or financial capital.

A binding price floor is a required price that is set above the equilibrium price. This has the effect of binding that good s market. For example if the equilibrium price for rent was 100 per month and the government set the price ceiling of 80 then this would be called a binding price ceiling because it would force landlords to lower their price from 100 to 80. 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.

Governments usually set up a price floor in order to ensure that the market price of a commodity does not fall below a level that would threaten the financial existence of producers of the commodity. The government is inflating the price of the good for which they ve set a binding price floor which will cause at least some consumers to avoid paying that price. Types of price floors.