minimum prices

Question 1

aka

Answer 1

price floor

Question 2

what is a minimum price

Answer 2

price control enacted by teh gov usually set above equilibrium makret price

Question 3

why do we use price floors

Answer 3

think price way too lwo we want to rise it

Question 4

when you enact a minimum price legally you cannot

Answer 4

fall below it hence its a floor

Question 5

explain the two reasons why we use minimum prices

Answer 5

protect producers from price volatility especially primary comm prodiucers e.g farmers

solve mkt failure by increasing price in mkt therfore discouraging consumption and production of that g/s that does harm to society

Question 6

why in terms of price volatility is higher prices good

Answer 6

more rev cause demand is inelastic

this can increase profit margins

increase SOL

Question 7

draw the graph

Answer 7

demand and s as normal

draw p min line above - put price floot label

draw line going down - qd and qs

draw contraction and extension lines

draw hte excess supply bit

axis price of wheat - y
quantity of wheat - x

Question 8

what happens to price in mkt

what happens to QD

Answer 8

increases form p1 to p min

what happens to qd - contracts then falls from q1 to qd cuz price is higher

Question 9

what happens to price in mkt

what happens to demand in mkt

Answer 9

increases form p1 to p min

what happens to qd - contracts then falls from q1 to qd cuz price is higher

Question 10

what happens to supply in market

Answer 10

extension and increases

q1 to S

because producers respond to incentive of increasing price by producing more ouptut

Question 11

what 2 phrase can we use to analyse excess uspply

Answer 11

inefficient allocation of resources

and massive burden on producers

Question 12

why is the excess supply a massive burden on producers and inefficient allocation of scarce resources

Answer 12

producers put cost into selling output but only sell QD

this decreases profit margins

what are we gonna do with surplus = dsetroy it /store it whihc is a huge cost

Question 13

as long as the gov can afford it what do they do in the case of excess uspply of min mkt

Answer 13

buy up excess supply - inervention buying

buy QD - qs at p min price

Question 14

what s teh cost of intervention buyig

Answer 14

qdqsbc

Question 15

producer rev depends on

Answer 15

Whether there is intervetion buying

Question 16

if theres intervention buying what is the producer rev

Answer 16

p min
q
s
0

Question 17

what case may we not see intervention buying

Answer 17

in developing coutnries

Question 18

if there is no intervention buying what is the producer revenue

Answer 18

P min
b
qd
0

Question 19

by intervening the gov may untintentioanlly create

Answer 19

dwl

Question 20

why does gov create a Dwl

Answer 20

The loss in producer and consumer surplus due to an inefficient level of production

Question 21

who are the key stkh who were looking to see impact of min price

Answer 21

consuemr

producer

gov

Question 22

explain the impact on consumers

price got to pay , do thye not liek it and why

what is the effect on lower income hh

OT can consumers ugfer and why
i.e
- costs
- borrowing
- OC

overall net effect
but

Answer 22

they dont like paiyng highe prices : CS eroded , Q are lower and choice is lwoer

effect can be regresive as in low income hh have to pay highe rprices

OT ocnsumers suffer as they bear the cost of intervention buying through highe taxes /cuts tot other areas of gov spending in econ

gov could be borrowing and paying debt interest which is a huge opportunity cost i.e culd have been used elsewhere productivley in econ which would have given consumers more beenfit

overall net effect is -ve but can say fact industry survicves mean producers continue to produce and get the goods and services

Question 23

the effect on rpducers depends on if

Answer 23

theres intervention buying

Question 24

explain impact on producers w IB

Answer 24

get more rev , more PS ,

survive in mkt w price volatility if P falls and this is good for livelihoods and SOL

workers happy as theres less risk of unemp q

Question 25

explain impact on gov

in theory
concerns
what does this do to the poort
unintensed consequences
costs
excess supply
what could they do but what does this cause

Answer 25

in theory yes if core goals reached and solving mkt failure

no cause concerned for impact on consumers

regressive
untinded consequence like lck mkt forming
welfare loss of higher orices

concerned about costs of IB fnding issues

+ bearing excess supply means got to store or destroy whihc is costly and waste of resources

could do duming overseas wgucg us nit fiid as create internaitonal relation issues

Question 26

ultimatlyey what have the gov got to do when desciidng to interven

Answer 26

weigh up costs and benefits