Price Floor
Plain definition
A price floor is a legal minimum price — sellers may not charge below it. It only matters when set above the equilibrium price; a floor below equilibrium is non-binding and changes nothing.
In economics
Binding price floors create surpluses: quantity supplied rises while quantity demanded falls. Minimum wage laws and agricultural support prices are the classic cases. The intended help to sellers or workers comes with side effects — unsold goods or unemployment among those priced out — since the price cannot fall to clear the market.
Example
A government guarantees farmers 2,500 rupees per quintal of rice when the market price would be 2,000. Farmers expand planting, consumers buy less, and the surplus rice must be purchased and stored by the state — a costly stockpile born of the floor.
Like ceilings, floors are misjudged when people forget the binding test. A minimum wage below the market wage changes nothing; only a floor above equilibrium bites. And a binding floor's consequence is a surplus (quantity supplied exceeding quantity demanded) — excess goods or, in labor markets, unemployment — not a shortage.