Binding Price Floor Diagram

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.

Binding price floor diagram.

A price floor is an established lower boundary on the price of a commodity in the 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. Types of price floors. 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.

A price floor is the lowest legal price that can be paid in markets for goods and services labor or financial capital. This can be depicted in a supply and demand diagram as such. A binding price floor is a required price that is set above the equilibrium price. The latter example would be a binding price floor while the former would not be binding.

Note that the price floor is below the equilibrium price so that anything price above the floor is feasible. 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. A price floor is the lowest price that one can legally charge for some good or service.