Price Floor
A government-set minimum price for a good or service, above the equilibrium price, intended to benefit producers.
What is Price Floor?
A price floor is a legally mandated minimum price that cannot be undercut in a market. To be binding (effective), the floor must be set above the market's natural equilibrium price. At the floor price, quantity supplied typically exceeds quantity demanded, creating a surplus. The most prominent example in the United States is the federal minimum wage — a price floor on labor. Agricultural price supports, which set minimum prices for crops like wheat, corn, and dairy, are another major application. While price floors benefit producers who receive a higher price, they reduce market efficiency by creating deadweight loss: mutually beneficial transactions between willing buyers and sellers at prices between equilibrium and the floor are prevented. Binding price floors also create compliance challenges, black markets, and may incentivize excess production.
Example
The U.S. federal minimum wage of $7.25 per hour (as of 2026) acts as a price floor for low-wage labor. Because this rate exceeds the equilibrium wage in some low-cost-of-living regions, it results in a surplus of labor (unemployment) in those areas. However, in high-cost metro areas where market wages already exceed $7.25, the federal floor is non-binding and has no direct effect on employment.