Price floors are, as the name implies, levels below which prices cannot go. That price constitutes a “floor” because the price level cannot fall through it and reach a lower level. Price floors do not exist in truly free markets. They can only exist if a government mandates them or...
Price floors are, as the name implies, levels below which prices cannot go. That price constitutes a “floor” because the price level cannot fall through it and reach a lower level. Price floors do not exist in truly free markets. They can only exist if a government mandates them or if private enterprises agree to them through such processes as collective bargaining.
The most common example of a price floor is the minimum wage. In the United States, it is illegal to employ a person (with some exceptions) unless you pay them at least $7.25 per hour (this figure is higher in some states). This price floor, which is mandated by the government, prevents the price of labor from going any lower.
In pro team sports in the United States, there are usually price floors in the form of minimum wage levels. The article in the link below gives the current figures for the minimum salaries for many American sports leagues. For example, it shows us that the minimum salary for a player in Major League Baseball is $500,000 per year. The National Basketball Association has a minimum salary that is slightly higher, at $507,336 per year, though players who have been in the league for more than 10 years have a higher minimum. The NBA also has a price floor for teams as a whole. Teams must spend at least $56.759 million on player salaries this year. These price floors are generally agreed to by the leagues and their players’ unions in collective bargaining.
Economists argue that price floors bring about surpluses because buyers do not want to buy as much of the product when the price is artificially raised. However, this probably does not apply to pro sports where teams have certain numbers of roster spots that they must fill.