Minimum Price

Question 1

What is a minimum price

Answer 1

A fixed price enacted by government usually set above the equilibrium market price

Question 2

What are the aims of a minimum price

Answer 2

Protect producers from price volatility - agriculture and primary commodities

Solve market failure - raise price which discourages consumption and production

Question 3

How does a minimum price affect price

Answer 3

Increases

Question 4

How does a minimum price affect demand

Answer 4

Fallen

Question 5

How does a minimum price affect supply

Answer 5

Expansion

Question 6

What does a minimum price create

Answer 6

Excess supply

Question 7

How may a government solve excess supply

Answer 7

Intervention buying

Question 8

What do key stakeholders think of minimum prices

Answer 8

Consumers - higher prices, gov may borrow or raise taxes, consumer surplus eroded and less affordability (regressive)

Producers - if there’s intervention buying then there revenue and surplus increase

Government - if hitting aims (unintended consequences)