Ace Your Economics Edge: Conquer the IGCSE Practice Test 2025 and Cash In on Success!

A price floor is a minimum price set by the government for a particular good or service, and it is typically implemented to ensure that producers receive a minimum income, particularly in industries that are deemed essential or vulnerable, such as agriculture. By establishing a price floor, the government aims to protect farmers from extreme price fluctuations that can occur in the market, which in turn supports food security and economic stability within the agricultural sector.

When the government sets a price floor above the equilibrium price, it ensures that prices do not fall below a certain level, thus guaranteeing that producers can cover their costs and maintain a sustainable livelihood. This intervention helps to prevent situations where farmers might otherwise sell their products at a loss due to oversupply or unfavorable market conditions.

In contrast, scenarios such as luxury items do not typically require price floors because they are not essential goods and are often subject to market demand. Additionally, preventing monopolies does not relate to the concept of a price floor, as price floors and the regulation of monopolies operate within different contexts of market intervention.