Assignment # 1

Management Sciences

Subject: Micro Economics

Submitted To: Ma’am Zahra Nahid

SUBMITTED BY: Raja Saad Ahmed

Roll No: LCM-3769

Submission Date: 28th March 2020

Question no 1:
Applications of demand and supply on agriculture sector.
Answer:
Application # 1. Application on Farm Products:
There is ideal rivalry in the market for ranch items. Homestead items like wheat or
rice are typically homogeneous. They are created by numerous ranchers and every
rancher is delivering a little segment of the all out stock of a specific homestead
item, state wheat.

Since all out ranch item is the whole of the creation of numerous ranchers, no
individual maker or rancher can influence its market supply. Every maker is value
takers in the item advertise. He can't influence its cost and needs to acknowledge
the common market cost. Accordingly, the market where the homestead items are
sold and purchased is superbly serious.

In the event that the interest and supply powers acquire a fall the cost of a
homestead item, the maker of that specific item will need to create more to keep up
his salary. Truth be told, there is insecurity and vulnerability in farming. As
brought up by Samuelson, "Cultivating is an all over industry."

This is on the grounds that it relies on the caprices of nature. A dry spell or
overwhelming downpours may harm the harvest and carry hopelessness to the
rancher. Then again, auspicious downpours and great climate conditions may
prompt a guard trim and carry success to them.

In addition, horticulture is dependent upon the theory of consistent losses sooner

than in industry on the grounds that:

(I) Land is restricted in supply,

Notices:
(ii) Farming tasks are to a great extent reliant on nature, and

(iii) Economies of huge scope creation are not accessible, aside from on huge
homesteads in nations like America and Australia.

Given these curious states of homestead tasks, the costs of ranch items are dictated
by request and supply.

Interest for Homestead Items:

Homestead items by and large fall under the class of fundamental merchandise. So
their interest is less flexible. This implies when the cost of a ranch item falls, its
interest won't rise a lot and when its value rises, its interest won't fall a lot.
Changes in ranch costs don't impact the interest for them in light of the fact that a
customer needs to expend these items under all conditions.

The customer spends just a little part of his pay on them. There are no substitutes
for these items. The less flexible nature of ranch items likewise infers that when
there is a guard crop, their inventory in the market increments. Request being less
versatile, the cost of the ranch items will fall.

Supply of Homestead Items:

The stockpile of ranch items is likewise less versatile. The less versatile inventory
is because of the inelasticity of the components of creation at the removal of the
ranchers. The cultivable place where there is makers is fixed and unchangeable.
Additionally, ranch work needs free portability.

Besides, all expenses of ranch creation are fixed and the extent of variable
expenses is exceptionally inconsequential. So whatever amount a rancher creates,
his expenses don't change. He won't, in this way, diminish the stock. Or maybe, he
will create more, in the expectation of remunerating himself when the cost of his
item falls. Along these lines supply increments.

Value Assurance:
The cost of a homestead item is resolved at a point where its interest and supply
bends meet one another. This is appeared in Fig. 1 where D and S are request and
supply bends separately which are less versatile. Both meet at point E and decide
Operation harmony cost and OQ amount requested and provided.

Assume the stock of ranch item, state rice, increments and the inventory bend
movements to one side from S to and the new balance is set up at E1 Yet the
interest stays unaltered which cuts down the cost to OP1 With the fall in cost, the
stockpile increments to OQ1 in light of the fact that the makers need to keep up
their previous degrees of pay. Be that as it may, the complete income of the makers
tumbles from OPEQ to OPE1Q1 as estimated by concealed square shapes.

Farming Value Backing:

The legislature in creating nations like India by and large gives the office of value
backing to the ranch makers and simultaneously, it gives ranch items at sensible
costs to shoppers. It gives value support with the goal that the costs of homestead
items don't fall beneath indicated levels.

The administration fixes least costs:

(I) To shield ranchers' salaries from value variances of homestead items, and
Ads:

(ii) To make cushion stocks to forestall conceivable future deficiencies of ranch

items.

The predefined level of least costs is called value floors. It is unlawful to embrace
any exchange underneath the value floor.

Agrarian value support by the legislature is shown in Fig. 2, where D and S are
request and supply bends individually. Operation is the harmony cost and OQ the
balance amount. Assume the administration forces a value floor at OP1 value level
over the harmony value Operation.

Commercials:

At this value floor, the makers are happy to sell OQ1 amount, while the interest
tumbles to OQ2, bringing about an overflow of Q2Q1 which the administration
purchases as cradle stock. The buyers need to follow through on greater expense
OP1 than the balance value Operation.

The surplus is disposed of by the legislature by and large in three different ways:

(I) Supply i.e., restricting the real esatate of land for the ranchers to develop certain
agrarian products;
(ii) Animating interest i.e., new uses for ranch items are looked for; and

(iii)Purchasing surpluses i.e., certain ranch items are purchased and put away by
the administration for later use as "cradle stocks".

Application # 2. Value Control:

Once in a while the administration may figure it important to meddle in the market
procedure and set greatest (low) value limits for some essential merchandise.
These are known as value roofs. Makers of such products can't charge costs higher
than the maximum price tags i.e., the most extreme costs fixed by the
administration.

Value roofs are commonly forced on numerous basic shopper products during war
or other basic inflationary periods to keep them from transcending a specific level.

On account of such items, the most extreme costs fixed by the legislature are
beneath the balance cost. At a value lower than the balance value, the amount
requested is more than the amount provided which prompts the lack of the ware.
This requires the presentation of proportioning by the legislature whereby
limitation is forced on the amount of a decent that a shopper can purchase.

A value roof can be outlined by the typical interest and supply bends. In Fig. 3, D
and S are request and supply bends individually. They cross at point E where
Operation is the equilib¬rium cost and OQ harmony amount.

On the off chance that the administration views the harmony cost as excessively
high, it might fix a maximum price tag at OP1 .This will bring about a deficiency
of the great equivalent to Q2 Q1 in light of the fact that Operation, cost
demonstrates abundance request (O Q1) over OQ2 supply. Right now, government
may think that its important to present proportioning with the goal that the
restricted products might be designated among all the purchasers who need them.
Application # 3. Black Market:
Underground market of an item is the market wherein a ware is sold unlawfully by
the dealers at a cost higher than the controlled legitimate greatest cost or maximum
price tag. It creates by virtue of overabundance request in the market. A few
purchasers are set up to follow through on a greater expense for securing greater
amount of the item. Dealers are additionally keen on the underground market to
sell the items at more significant expenses and acquire more benefits.

The working of underground market is appeared in Fig. 4 where D and S are

request and supply bends. They converge at point E and decide Operation
showcase cost and OQ advertise amount. In any case, the avail¬able amount of the
item is OQ1 due to OP2 value roof. Be that as it may, the interest is OQ2 and Q2
Q1 is the lack of the ware.
Along these lines, the purchasers are prepared to offer OP1 cost for obtaining more
units of the item. On the off chance that the all out amount OQ1 is sold operating
at a profit advertise, the aggregate sum paid by the buyers will be OP1 BQ1 Yet
the receipts of the makers may be OP2 AQ1 be¬cause of the value roof.

Along these lines, the sum OP1 BO1 – OP2 AO1 = P BAP2 will be the additional
increase of dark advertisers appeared by the concealed territory. Be that as it may,
the whole inventory is commonly not sold operating at a profit advertise, in light of
value laws.
Application # 4. Consumer’s Surplus and Producers’ Surplus:
Request and supply examination is exceptionally useful in knowing purchaser's
surplus and maker's overflow. Buyer's surplus is the distinction between the an all
out worth that customer is happy to pay and the installment that they really makes
for the acquisition of that item. The all out worth that a customer is happy to pay is
the territory under the interest bend.

Then again, what he really follows through on is the market cost line. Maker's
surplus is the region over the inventory bend and beneath the market value line. It
is the distinction between the real sum that a maker gets by selling a given amount
of a ware and the base sum that he hopes to get for its equivalent amount.

In Fig. 5, DD1 is the interest bend and SS1 is the stock bend. Both converge at E
and decide Operation cost and PE is the market value line. OQ is the balance
amount. The customer's surplus on OQ units of the item is the zone EPD and the
maker's surplus on similar units of the item is ESP. The entirety of buyer's and
maker's surplus will be the most extreme, when the market structure is superbly
serious.
Application # 5. Minimum Wage Legislation:
Obsession of least wages by the administration can likewise be appeared by
request supply investigation. Fixing least wages by the state for perspired
exchanges will in general evacuate misuse of work.

Least wages will so expand the wages of laborers that their utilization uses will
build which will, thus, lead to extension of the buyer's merchandise ventures and to
the capital products enterprises. This will expand work, yield and national pay.

Figure 6 delineates the impacts of fixing the lowest pay permitted by law over the
serious level. It shows the assurance of the harmony wage rate OW1 when the
interest and supply bends for work DL and SL individually meet at point E.

At this compensation rate, ON of work is utilized. Assume the legislature fixes a

lowest pay permitted by law of OW2 which is higher than the serious pay OW1.
The expansion in the cost of work to OW2 diminishes the interest for work to ON2
However the stockpile of work increments to ON1 with the obsession of the higher
the lowest pay permitted by law. This abundance supply over the interest for work
prompts N2 – N1 joblessness.
Application # 6. Subsidy:
At the point when the administration feels that the market cost for the homestead
item is unreasonably low for the ranchers, it chooses to pay them an appropriation.
They will get it notwithstanding the market cost. An appropriation is an
administration award given to makers to lessen the cost per unit of an item.

This is to urge the ranchers to deliver more which will, thusly decrease the market
costs. The advantages move from the makers to the purchasers which rely upon the
versatility of interest and supply.

Appropriation moves the stock bend descending to one side. This is delineated in
Figure 7 where request and supply bends are D and S separately. They inter¬sect at
point E. Operation is the harmony cost and OQ balance amount.
The administration concludes that the ranchers ought to get a cost of OP2 for their
item. Appropriately if a sponsorship equivalent to BC is without a doubt, the stock
bend moves descending to one side to S1 .The new harmony is at C. OP1 is the
new harmony cost and OQ1 the new balance amount.

Along these lines, because of the appropriation, the value tumbles to OP1 and the
amount ascends to OQ1 .The advantage to purchasers is equivalent to PP1 .They
can purchase greater amount OQ1 at a lower value OP1 The advantage to makers
is equivalent to P1P2 .The sponsorship paid by the legislature is equivalent to the
entirety of the advantages of shoppers and makers the concealed territory P1P2BC.
Application # 7. Taxation:
The interest and supply investigation is pertinent to the issue of occurrence of
backhanded tax collection. The frequency of an expense includes the procedure of
move from the individual on whom the duty is forced at first to a definitive citizen
who bears the cash weight of the assessment.

The rate of item tax collection is shared between the purchasers and merchants in
the proportion of the versatility of supply of the exhausted product to the flexibility
of interest for it.

Es/Ed = Rate on Purchasers/Frequency on Venders

This is clarified diagrammatically in Figure 8. Leave D alone the interest bend and
S be the stock bend of the ware before the assessment is imposed. OQ amount of
the ware is sold and purchased at QA (=OP) cost.

Assume an extract obligation proportional to ET is forced on per unit of the ware,

which is gathered from the dealers. Thus, the inventory bend moves upward as S1
and the cost of the item ascends to Q1 T (=OP1). However, the per-unit increment
in cost is RT. the contrast between the new value (Q1T) and the pre-charge value
(QA).
In this way the RT part of the assessment is borne by the purchasers and ER parcel
by the venders, ET = ER + RT. Given the versatility of supply, the more prominent
the flexibility of interest for a ware, the more prominent will be the occurrence of
the duty upon the makers and the other way around. Similarly, given the versatility
of interest, the more noteworthy the flexibility of supply, the higher will be the
frequency of assessment upon the purchasers, and the other way around.

Question no 2:

Impact of tax on price and quantity.

Answer:

How do taxes affect prices?

As deals charge causes the stockpile bend to move internal, it secondarily affects
the balance cost for an item. Balance cost is the cost at which the maker's stock
matches buyer request at a steady cost. Since deals charge expands the cost of
products, it causes the harmony cost to fall.

Impact on Cost:
One of the most quick and away from of deals charge on market interest includes
an expansion in the cost of shopper products. This happens on the grounds that
organizations must compensation more for the items they purchase, including
hardware, office decorations and PC gear. The greater expense of working together
converts into more significant expenses for new items. Since value fills in as the
vertical hub of an organic market diagram, this rising cost from deals charge
causes the stockpile bend to move internal with the goal that decreases in supply
relate to existing costs, mirroring the way that organizations would now be able to
create less for a similar measure of cash.

Impact on Harmony:

As deals charge causes the stockpile bend to move internal, it secondarily affects
the balance cost for an item. Balance cost is the cost at which the maker's inventory
matches buyer request at a steady cost. Since deals charge expands the cost of
products, it causes the balance cost to fall. This may imply that it turns out to be
progressively hard for organizations to benefit from selling merchandise, or that
shoppers change their purchasing conduct to buy less of the more-costly products.

Effect on Request:

While deals charge influences supply legitimately, it just indirectly affects buyer
request. Other than modifying the balance value, which considers, deals charge
likewise impacts purchasers' purchasing power. At the point when deals charge
rates are high, customers spend more cash on charges and have less to spend on
extra merchandise. This drives down general interest, or powers organizations to
decrease costs to keep request consistent. This impact remains constant in any
event, for things that are not dependent upon deals charge, for example, staple
things and professionally prescribed medications.

Shoppers to Government – Zone A:

Shoppers initially paid $4/gallon for gas. Presently, they are paying $5/gallon. The
$1 increment in cost is the segment of the assessment that shoppers need to endure.
In spite of the way that the duty is imposed on makers, the shoppers need to hold
up under a portion of the value change. The size of this offer relies upon relative
versatility – an idea we will investigate in the following area. This is on the
grounds that an abatement in cost to makers implies amount provided is falling,
and so as to look after harmony, amount requested must fall by an equivalent sum.
This value change implies the administration gathers $1 x 2 million gallons or $2
million in charge income from the customers. This is a straight exchange from
buyers to government and has no impact on showcase overflow.

Makers to Government – Region C:

Initially, makers got income of $4/gallon for gas. Presently, they get $2/gallon.
This $2 decline is the part of the expense that makers need to hold up under. This
implies the administration gathers $2 x 2 million gallons or $4 million in charge
income from the makers. This is an exchange from makers to the administration.

As determined, the administration gets an aggregate of $6 million in charge

income, which is taken from customers and makers. This has no effect on net
market excess.

Deadweight Misfortune – The Effect of Amount:

On the off chance that we simply thought to be an exchange of overflow, there

would be no deadweight misfortune. Right now, we realize that value changes
accompany an adjustment in amount. A more significant expense for buyers will
cause a lessening in the amount requested, and a lower cost for makers will cause
an abatement in amount provided. This decrease from harmony amount is the thing
that causes a deadweight misfortune in the market since there are buyers and
makers who are never again ready to purchase and supply the great.
Purchaser Surplus Abatement – Zone B:

Because of the expansion in cost, numerous shoppers will change away from oil to
elective alternatives. This abatement in amount request of 1.5 million gallons of oil
causes a deadweight loss of $1 million.

Maker Surplus Reduction – Zone D:

Makers, who presently get just $2.00/gallon for their creation, will likewise
diminish amount provided by 1.5 million gallons of oil. It is no fortuitous event
that the size of the lessening is the equivalent. At the point when you make the
wedge among shoppers and makers, you are finding the amount where everything
of the expense is brought about however the market is still at harmony. Recall that
amount requested must rise to amount provided or the market won't be steady. This
reflected abatement in amount guarantees this is as yet the case. Notice, in any
case, that the effect of this amount drop causes a bigger abatement in maker
surplus than buyer surplus totalling $2 million. Once more, this is because of
flexibility, or the relative responsiveness to the value possibility, which will be
investigated in more detail in a matter of seconds.

Together, these reductions cause a $3 million deadweight misfortune (the

distinction between the market surplus previously and market surplus after).

Effect of assessment on amount:

The impact of the assessment on the stock interest harmony is to move the amount
toward a point where the before-charge request less the before-charge supply is the
measure of the duty. An assessment builds the value a purchaser pays by not
exactly the expense. ... A duty causes shopper surplus and maker excess (benefit)
to fall.
While an assessment drives a wedge that builds the value purchasers need to
address and diminishes the cost makers get, an endowment does the inverse. An
endowment is an advantage given by the legislature to gatherings or people, as a
rule as a money installment or a duty decrease. An endowment is regularly given to
evacuate some sort of weight, and it is frequently viewed as in the general
enthusiasm of people in general. In monetary terms, an appropriation drives a
wedge, diminishing the cost customers address and expanding the cost makers get,
with the administration acquiring a cost.

In Theme 3, we took a gander at a contextual investigation of Victoria's serious

lodging showcase where appeal drove up costs. Accordingly, the legislature has
sanctioned numerous approaches to permit low-salary families to in any case
become property holders. How about we take a gander at the impacts of one
potential approach. (Note the accompanying strategy is ridiculous yet considers
simple perception of the impact of endowments).
Figure 4.7f
In the market over, our proficient harmony starts at a cost of $400,000 per home,
with 40,000 homes being bought. The administration needs to significantly build
the quantity of buyers ready to buy homes, so it gives a $300,000 appropriation for
any buyers buying another home. This drives a wedge between what home
purchasers pay ($250,000) and what home manufacturers get ($550,000).

With all administration strategies we have inspected up until now, we have needed
to decide if the aftereffect of the arrangement increments or diminishes advertise
overflow. With an appropriation, we need to do a similar examination. Sadly, in
light of the fact that increments in surplus cover on our outline, it turns out to be
increasingly confused. To streamline the examination, the accompanying chart
isolates the progressions to makers, purchasers, and government onto various
diagrams.
Figure 4.7g

Producers:

The makers presently get $550,000 rather than $400,000, expanding amount
provided to 60,000 homes. This builds maker surplus by territories An and B.

Customers:
The customers currently pay $250,000 rather than $400,000, expanding amount
requested to 60,000 homes. This builds customer surplus by regions C and D.

Government

The administration presently needs to pay $300,000 per home to sponsor the
60,000 buyers purchasing new homes (this strategy would cost the legislature $18
billion!!) Graphically, this is equivalent to a lessening in government to zones A,
B, C,D and E.

Result:

Our complete increases from the approach (to makers and customers) are zones A,
B, CandD, though all out misfortunes (the expense to the administration) are
regions A, B, C, D, andE. To abridge:

Territories A, B, C and D are moved from the administration to buyers and makers.

Territory E is adeadweight misfortune from the arrangement.

There are two things to see about this model. To start with, the arrangement was
effective at expanding amount from 40,000 homes to 60,000 homes. Second, it
brought about a deadweight misfortune since balance amount was excessively
high. Keep in mind, anytimequantity is transformed from the harmony amount,
without externalities,there is a deadweight misfortune. This is valid for when
amount is diminished and when it is expanded.
Question no 3:

Consumer surplus and producer surplus. Also mention one example

for both.

Answer:

Customer Surplus is the distinction between the value that purchasers follow
through on and the cost that they are eager to pay. On a market interest bend, it is
the territory between the harmony cost and the interest bend.

The most effective method to Ascertain Purchaser Overflow:

Customer surplus is a monetary estimation to figure the advantage (i.e., overflow)

of what shoppers are happy to pay for a decent or administration versus its market
cost. The shopper surplus equation depends on a monetary hypothesis of minor
utility. The hypothesis clarifies that going through conduct fluctuates with the
inclinations of people. Since various individuals are happy to spend diversely on a
given decent or administration, a surplus is made. This measurement is utilized
over a wide scope of corporate money vocation.

Purchaser Surplus Recipe:

There is a financial recipe that is utilized to compute the purchaser surplus by

taking the distinction of the most elevated shoppers would follow through on and
the real cost they pay.
Here is the recipe for customer excess:

Purchaser surplus= most extreme value willing - real cost

Customer Surplus at a Bigger Scope:

Request bends are profoundly significant in estimating buyer surplus as far as the
market in general. An interest bend on an interest supply diagram portrays the
connection between the cost of an item and the amount of the item requested at that
cost. Because of the law of decreasing minor utility, the interest bend is descending
inclining. The orange concealed part in the outlined chart introduced above speaks
to the buyer overflow.

Model:

We should apply the above equation to a model circumstance. Suppose there is a

buyer who is looking for a vehicle that fits a specific arrangement of
determinations: mileage of less than 50,000 miles and warmed calfskin seats. The
most extreme value that this purchaser would pay for a vehicle that meets these
criteria is $8,000. Be that as it may, fortunate for them, they discover a vehicle that
has just been traveled 30,000 miles and has agreeable warmed calfskin seats, and
it's being sold for just $6,000! We should plug that into the above equation:
Purchaser surplus = $8,000 – $6,000

That implies, right now, purchaser surplus is an aggregate of $2,000. This extra
cash the purchaser was happy to pay for their vehicle would now be able to be
applied to different buys.

Maker overflow:

Maker overflow" alludes to the worth that makers get from exchanges. For
instance, if a maker would sell a useful for $4, however he can sell it for $10, he
accomplishes producersurplus of $6. Like shopper excess, producersurplus can
likewise be demonstrated by means of a graph of organic market.

Model:

Maker surplus is a monetary term that depicts both the negligible value that an
organization will acknowledge to sell its item for and furthermore the maximal
value that the organization can sell a similar item for. As a figuring, it is the
contrast between the higher selling esteem and the insignificantly acknowledged
worth. As a rule, the negligibly acknowledged cost is the assembling value, which
makes balance. A maker surplus model is a decent method to completely
comprehend the idea.
Selling Extravagance Autos Surplus Model:

Extravagance vehicle producers for the most part make a set number of cars at
whatever year. Expect that this number is 5,000 vehicles, whereby every vehicle's
insignificantly acknowledged worth is $100,000. In typical financial periods, this
number may be the standard selling cost. Be that as it may, if the monetary
conditions improve and more buyers need to purchase the vehicle, the
insignificantly acknowledged worth becomes sought after, despite the fact that
there are still just 5,000 delivered. Buyers may really pay $150,000 for the vehicle.
The distinction of $50,000 per vehicle is the maker excess. Maker surplus is
dependent upon the guideline of market interest. The higher the interest with the
lower supply, the more cash an organization can charge; along these lines, this
number becomes benefit for a similar item.

Everything from espresso to shades is valued to make the best measure of maker
excess. This is the means by which organizations extend their net revenue on every
thing, with the goal that they can create more noteworthy net incomes for the
whole organization. It bodes well to get the best measure of cash for your item
when you can.

Maker Surplus Estimation:

Utilizing the case of the extravagance vehicles, in the event that you need to figure
the whole measure of maker overflow, you would compute the aggregate sum over
the base qualities acknowledged. On the off chance that each of the 5,000 vehicles
were sold for $100,000, this is $500 million. On the off chance that each vehicle
were sold for $150,000, at that point the incomes go up to $750 million leaving a
maker overflow of $250 million. Odds are only one out of every odd vehicle will
sell for that sum and there will be a variety of absolute selling costs. Eventually,
the all out incomes less the insignificantly acknowledged worth will yield the
maker surplus worth. On the off chance that the absolute deals are $600 million
with the equivalent $500 million as the base expected for all out deals, the maker
surplus is $100 million.

Recipe:

The zone of the dabbed triangle (speaking to producersurplus) is determined as ½ x

base x stature, with the base of the triangle being the balance amount (QE) and the
tallness being the harmony value (PE). "Complete excess" alludes to the total of
customer surplus and producersurplus.
Question no 4:

Price ceiling and price floor, with at least one example.

Price ceiling:
Definition:
Price ceiling is a situation when the price charged is more than or
less than the equilibrium price determined by market forces of demand and supply.
It has been found that higher price ceilings are ineffective. Price ceiling has been
found to be of great importance in the house rent market.
Description:
Government imposes a price ceiling to control the maximum prices that
can be charged by suppliers for the commodity. This is done to make commodities
affordable to the general public. However, prolonged application of a price ceiling
can lead to black marketing and unrest in the supply side.

For example: Let's consider the house-rent market. Here in the given graph, a price
of Rs. 3 has been determined as the equilibrium price with the quantity at 30
homes. Now, the government determines a price ceiling of Rs. 2. At this rate there
is a shortage (demand for 40 houses, but supply is for only 20 houses). In the long
run, the extra 20 people will try to get a house on rent, which will eventually give
rise to black markets and higher rents.

Example:
Examples of priceceiling include price limits on gasoline, rents, insurance
premium etc. in various countries. Consider a hypothetical market the supply and
demand schedules of which are given below: Unit.

Price Floor:

A price floor is the lowest legal price a commodity can be sold at. Pricefloors are used by the
government to prevent prices from being too low. The most common price floor is the minimum
wage--the minimum price that can be payed for labor. ... For a price floor to be effective, it must
be set above the equilibrium price.

A price floor in economics is a minimum price imposed by a government or agency, for a

particular product or service. ... Common examples of price floors are the minimum wage,
the price that employers pay for labor, currently set by the federal government at $7.25 an hour.
Example:
Best-known example of a price floor is the minimum wage, which is based on the
view that someone working full time should be able to afford a basic standard of
living. The federal minimum wage in 2016 was $7.25 per hour, although some
states and localities have a higher minimum wage.