What is a price floor?

A price floor is defined as a legal minimum on the price at which a good can be sold. It is implemented by the government to ensure that prices do not fall below a certain level, usually to protect producers and ensure they can cover their costs. The purpose of a price floor is to prevent prices from being too low, which could result in negative economic impacts such as reduced supply or financial instability for the producers of the good.

For example, minimum wage laws can be seen as a form of a price floor in the labor market, where the government sets the lowest amount that can be paid for labor. If the price floor is set above the equilibrium price, it can lead to a surplus of goods, as the quantity supplied will exceed the quantity demanded at that price level.

In contrast, other options refer to different concepts. A legal maximum price would be a price ceiling, which is the highest price that can be charged for a good. The notion of a price at which all goods are sold is ambiguous and doesn't accurately reflect pricing mechanisms, while a suggested price based on production costs implies a recommendation rather than a mandated minimum price.