Define Price Floor. What is the common purpose of fixation of floor price by the government? Explain any one likely consequence of this nature of intervention by the government.

Define Price Floor. What is the common purpose of fixation of floor pr

1.	Define Price Floor. What is the common purpose of fixation of floor price by the government? Explain any one likely consequence of this nature of intervention by the government.
Answer» Solution :PRICE floor is the minimum price FIXED for a COMMODITY by the government (above the equilibrium price), which must be paid to the producers for their produce. The need for price floor arises when the government finds that equilibrium price is too low for the producers.As a result of price floor, the market price is above the equilibrium price, leading to EXCESS supply. This often leads to illegal selling of their produce by the producers since they are not able to sell the commodity at the price SET by the government.