Q. 5

Explain the effect of price floor.

Answer :

Sometimes the government may legally fix the minimum price at which the sellers may sell a good or service. Such price is known as floor price. Floor price benefits the supplier of a good or service. Floor price, which is also known as the minimum support price is fixed by the government to ensure that the producers or sellers get a proper remunerative price for their product. The floor price will motivate the producers to produce more by ensuring the fact that they will get a minimum reasonable price for their products. For example, in India, the government fixes minimum prices of agricultural products like wheat, rice etc and minimum wages of the labour working in different sectors of the economy.

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