In economic terms, what is a 'floor price' designed to protect against?

A 'floor price' is a government- or regulatory-imposed minimum price on a product or service. It is primarily designed to protect against a shortage in the market. When a price floor is set, it prevents prices from falling below a certain level, ensuring that producers receive a fair price for their goods or services. This is vital in ensuring that suppliers can continue to operate and produce at a sustainable level.

For example, in agriculture, if the market price for crops falls below the cost of production due to excess supply or other market forces, a price floor can stabilize farmers' prices, preventing them from incurring losses that could lead to reduced supply in the future. By protecting against shortages, a price floor helps maintain equilibrium in the market, ensuring that products are still available to meet consumer demand.