1.4.1 Minimum Prices Flashcards

1
Q

what is a minimum price

A

legally imposed price floors that a producer cannot go below. usually associated with minimum hourly wage rates in the labour market or guaranteed price support schemes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

give examples of minimum prices

A

NMW
minimum unit pricing e.g of alchohol

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

how is a minimum price shown on a diagram

A

draw equilibrium as usual, then add a horizontal line above equilibrium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is the effect of minimum prices on producers

A
  • due to the rise in price, producers are incentivised to supply more of the good to higher profits now derived from the good.
  • This expands supply
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what is the effect of minimum prices on consumers

A
  • due to the higher price consumers are unable/unwilling to buy as much as before
  • demand contracts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what now arises from minimum prices

A
  • excess supply now exists in the market by the distance QS to QD
  • there is now a surplus of the good
  • disequilibrium has arisen as demand is no longer equal to supply
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what may a minimum price lead to in the labour market

A

unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what are the pros of minimum prices

A
  • can reduce consumption of harmful goods with high external costs
  • raises awareness of the issue that could discourage consumption
  • can reduce exploitation of big business power
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are the cons of minimum prices

A
  • excess supply arises and this is evidence of an inefficient allocation of resources
  • low income groups will be hit by higher prices
  • drop in consumer surplus
  • government resources will need to be used to enforce minimum pricing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what does the impact of minimum pricing depend on

A
  • how far above equilibrium the min price is set
  • PED and PES
  • whether the government intervene to prevent a surplus
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

how does PED/PES affect the impact of minimum pricing

A

the greater the elasticity the greater the surplus that arises as demand and supply are more responsive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

how may the government intervene to prevent a surplus

A

impose quotas on producers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what will the government have to do to maintain the minimum price

A
  • intervene in the market to buy up the surplus
  • this causes demand to shift outwards to form a new equilibrium
How well did you know this?
1
Not at all
2
3
4
5
Perfectly