What are some reasons to have a set price floor for a good or service?
Price floor is a tool used by government to insure the minimum legal price for a commodity. It prevents the price of particular commodities to drop below certain level or price known as floor. Minimum wage rate allocated by government of a particular country is the best example of price floor.
Hence, the reasons to set a price floor for a good or service is to :
- To increase the market equilibrium.
- To protect the special groups like farmers, wage earners
Cost, Consumer Expectation, Demarketing, and Regulations.
Cost: no one would ever want to sell their products below cost.
Consumer Expectation: would you trust a buyer when the price of a premium location multi-storey detached Villa is $10,000? there must be something wrong. uncleared diligence, ownership conflict, or even poltergeist. right?
De-Marketing: would Hilton offer their Rooms for $10/per night? they wouldn't ask for that type of clients.
Regulations: Syndicates, Trade Unions, or Even Company Pricing Policies would strictly control Pricing to protect their products from deteriorating. even the most viscous competitors respect that fact and know they would be fool and suicidal to reduce their prices below market certain limits even if still profitable.
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