Why are price floors typically set by the government?

The government typically sets price floors to protect producers' income. A price floor is a minimum price established for a particular good or service, and it is often implemented in industries where producers might struggle to earn a sustainable livelihood, such as agriculture. By setting a price floor above the equilibrium price, the government ensures that producers receive a minimum level of income for their products, which can help stabilize the market and encourage production.

This intervention is vital in markets where fluctuations in prices could severely affect the producers' ability to cover costs, leading to economic instability and decreased supply. In this context, the price floor acts as a safety net for producers, ensuring that they can continue operating and that their livelihoods are protected against market volatility. This is especially relevant in sectors that are crucial for food security and economic stability in a region.

Other options do not accurately reflect the primary purpose of price floors. For instance, maintaining a competitive market typically would not require price floors; in fact, price floors can create surpluses that disrupt competition. Reducing the supply of goods is not the goal of a price floor, as it aims to support producers by encouraging them to supply more at the guaranteed minimum price. Lastly, while price floors can influence consumer prices, they are not intended