Price Floor refers to the minimum legal price set by a government or regulatory authority for a particular good, service, or financial instrument. It prevents the market price from falling below a specified level, ensuring producers or sellers receive a minimum acceptable income. In economic terms, a price floor is effective only when it is set above the market equilibrium priceóotherwise, it has no practical impact.

In financial markets and commodities, price floors play a crucial role in maintaining stability and protecting certain sectors from extreme volatility. For example, agricultural price floors help farmers earn a sustainable income despite market fluctuations. Similarly, in energy or manufacturing sectors, a floor price may be implemented to ensure that companies can cover production costs and remain profitable. In some cases, companies or exchanges also use internal price floors to maintain minimum bid levels during public offerings or bond issuances.

While a price floor can protect producers, it may also lead to unintended consequences such as excess supply or surpluses. When the minimum price is higher than what consumers are willing to pay, demand decreases, and sellers may face unsold inventories. Hence, policymakers must balance social welfare with market efficiency while designing such controls.

In capital markets, SEBI ensures that pricing mechanismsósuch as floor prices during share buybacks, IPOs, or preferential issuesóare transparent and fair to investors. These regulations help prevent price manipulation and promote investor confidence. Understanding the concept of a price floor allows investors, traders, and businesses to make informed decisions aligned with market regulations and economic principles.