What are floor prices intended to do in a market?

Floor prices are established primarily to protect producers in a market by setting a minimum price for a good or service. This minimum price prevents prices from falling below a certain level, which can be essential during periods of low demand or oversupply.

By ensuring that prices do not drop below this threshold, floor prices help maintain a stable income for producers, allowing them to cover their production costs and potentially invest in their operations. This mechanism is often used in agricultural markets, for example, where governments may implement floor prices to safeguard farmers against volatile market prices.

Other options do not represent the primary function of floor prices. For example, while they may incidentally lead to increased prices in some scenarios as they stabilize the market, their core purpose is not to increase prices but to provide protection to producers. Ensuring maximum prices is not the goal of floor prices; instead, that would relate to price ceilings. Finally, controlling inflation rates is a broader economic concern that involves various tools and measures beyond just the implementation of floor prices.