price floor

A price floor is the opposite of a ceiling: a legal minimum, a price that may go no lower than some level, usually to protect sellers from prices judged too low. The two most common are the minimum wage (a floor under the price of labour, protecting workers) and agricultural support prices (a floor under crop prices, protecting farmers). The aim is to guarantee suppliers a decent return rather than letting the market drive their income down to the bone.

A floor only bites if it is set above the market equilibrium price; below it, nothing happens. Set above, it predictably creates a surplus. At the artificially high price, sellers want to supply more while buyers want less, so quantity supplied exceeds quantity demanded, and the excess can't drain away by the price falling — the law forbids it. In a goods market that surplus is unsold stock (the classic "butter mountains" and "wine lakes" of past farm policies, which governments then had to buy up and store). In the labour market, a wage floor set above equilibrium means more people want jobs than employers want to hire — and that surplus of labour is, in the textbook model, unemployment.

Here honesty matters most, because the minimum wage is one of economics' liveliest live debates. The simple supply-and-demand model predicts a binding minimum wage causes job losses, full stop. But decades of careful empirical research — beginning with a famous 1990s study by David Card and Alan Krueger — have found that modest minimum-wage increases often cause little or no measurable fall in employment, probably because real labour markets aren't perfectly competitive (employers can have wage-setting power, and higher pay can cut turnover). The truthful summary is not "floors always destroy jobs" nor "floors are free"; it is that the effect depends on how high the floor is set relative to local wages, and reasonable economists still disagree about where the harm begins.