Presentation on theme: "Martin Chou. Government-imposed price control on how low a price can be charged for a product or service Prices lower than the floor are illegal Must."— Presentation transcript:
Government-imposed price control on how low a price can be charged for a product or service Prices lower than the floor are illegal Must be above equilibrium price to be effective Examples: minimum wage, agricultural market (as of now)
Consumers are not willing to purchase as much, due to the higher price Producers, on the other hand, are willing to produce more than the equilibrium quantity This generates an excess supply, called a surplus Welfare loss (loss of economic efficiency at a non- optimal price) is also present
The price floor is at a fixed price, and is a horizontal line ABOVE the D-S curve intersection (equilibrium) The new quantity demanded (qd) is less than equilibrium, due to consumers not as willing to purchase The new quantity supplied (qs) is more than equilibrium, due to producers more willing to produce The excess supply, or surplus, is represented by the section of the price floor curve, between points df and sf The welfare loss is represented by the area wl
The government has several options: Purchase the surplus generated by the price floor Subsidize consumers (pay for part of the costs) Enforce the price floor and let the surplus go to waste Control the quantity produced
The opposite of a price floor Government-imposed price control on how high a price can be charged on a good or service Prices higher than the floor are illegal Must be below equilibrium price to be effective Example: Ceiling on gas prices to increase consumer usage
Floor price for onion exports hiked to $900/tonne Author: Our Bureau Summary: The Indian Government has implemented a new price floor for onion exports, from $650/tonne to $900/tonne. The reason for implementing this is to counter recent rising prices for onions. This proves that price floors are not an effective strategy. Onion prices continued to rise with this implementation, indicating that Indian shipments are even more unfeasable than before.
Tea Board fixes floor price for small growers produce Author: Santanu Sanyal Summary: The Tea Board of India has set a price floor for green leaves that is intended to benefit small tea growers in India. This also proves the ineffectiveness of minimum price controls. Although this has been implemented to benefit producers, it is only effective for a month, which implies that a long-term price floor may actually hurt more than help.
Bureau, Our. "Business Line: Floor price for onion exports hiked to $900/tonne." Business Line (India) 20 Sep. 2013,: NewsBank. Web. 10 Oct Sanyal, Santanu. "Business Line: Tea Board fixes floor price for small growersa produce." Business Line (India) 15 Sep. 2013,: NewsBank. Web. 10 Oct