Price Floor: 

When a market price is deemed to be too low, a price floor is set. Effective price floors are set above the equilibrium price and quantity. A price floor causes a surplus. If the governments imposed minimum price (price floor) is below the market-determined equilibrium price, then the price floor has no measurable affect on the product's price. In this case, the market is already producing a price higher than the imposed minimum. A different affect occurs when the government's imposed minimum price is above the market's equilibrium price. Suppliers can no longer charge the price the market demands but are forced to raise minimum price set by the government's price floor. A price floor set above the free-market price has a measurable impact on the market. It ensures prices stay high so that the product can continue to be made.

A high price floor forces consumers to pay a higher price decreasing the demand and even eliminating some consumers from the market. Producers on the other hand would now charge more for the product and increase supply. The decrease in demand and increase in supply due to the new imposed higher price creates a surplus of the product. The government in order to maintain the price floor over a period of time must eliminate the surplus. Taken together, these effects mean there is now an excess supply (known as a surplus) of the product in the market. In order to maintain the price floor over the long term, the government may need to take action to remove it.

An example of a price floor are minimum wage laws, laws specifying the lowest wage a company can pay an employee (employees are suppliers of labor and the company is the consumer in this case). When the minimum wage is set higher than the equilibrium market price for unskilled labor, unemployment is created (more people are looking for jobs than there are jobs are available). Price floors are also seen in the agricultural industry and the hospitality industry.