What is a price floor?

A price floor is defined as a legally established minimum price that must be charged for a good or service. This means that sellers cannot sell the product for a price lower than this predetermined minimum. Price floors are often set by the government to ensure that producers receive a fair income, and they can help to stabilize a market in situations where prices might naturally fall too low, often below the cost of production.

A classic example of a price floor is the minimum wage, which establishes the lowest legal hourly wage that can be paid to workers. If the market wage falls below this level, employers are legally bound to pay at least the minimum wage. This ensures that workers earn a sufficient income to meet basic living expenses.

In contrast, other options represent different concepts. A maximum allowable price refers to a price ceiling, which caps how high a price can be charged. Non-price regulations pertain to restrictions that do not involve price adjustments, while a form of taxation involves the government imposing a financial charge on individuals or businesses, which is unrelated to the concept of price floors. Therefore, the most accurate definition in the given context is a legally established minimum price.