2.7.4 - Governments in markets - minimum price Flashcards
(7 cards)
1
Q
Define minimum price
A
A minimum price or price floor is a lower limit set by the government to stop the price of a good or service from falling below a certain level.
2
Q
Why are minimum prices impsoed?
A
Governments use minimum prices to protect producers in markets.
3
Q
Draw a minimum price diagram
A
4
Q
What is the yellow shaded area
A
Consumer surplus
5
Q
What is the green shaded area
A
Producer surplus
6
Q
Impact on government
A
Opportunity cost of buying storing and managing excess supply.
7
Q
Impact on welfare
A
- misallocation of resources with huge surpluses developing at the expense of other production
- cost of waste when excess supply is bought and destroyed
- gain is concentrated amongst produces with losses dispersed across taxpayers and consumers
