LS20 - Max & Min Prices Flashcards
What is maximum pricing?
When the price is set below market equilibrium by the government
What is minimum pricing?
Price set above the market equilibrium price by the government
What are advantages if maximum pricing?
People can afford necessities
Fair wage distribution
What are some disadvantages of max pricing?
Can discourage those with capped income
Excess demand
Shortages created
Cost of enforcecement (opportunity cost)
Issue of rental market due to max pricing (housing)
Can create black markets
What are the pros for minimum pricing?
Allows for secure income
Discourages consumption of merit goods
What are some disadvantages of min pricing?
Excess supply - black market
Expensive for buyers
What is a guaranteed minimum price scheme?
Scheme in which excess supply from a minimum price is purchased by the government at minimum price
PROTECTS PRODUCER INCOME
Why might minimum pricing schemes be used in the agricultural market?
Volatility in the market due to weather
Farmers won’t have a guaranteed income
Cause use to import from other countries which is more expensive
Why is there an issue with the rental market due to max pricing?
Producer surplus falls = less money to invest/maintain property = long-term decline in quality of housing stock
What are the advantages of minimum pricing schemes?
Stable income = more investment & employment
Greater security for food supply
Surplus can be stockpiled or used as aid
What are the disadvantages of minimum pricing schemes?
Surpluses may be sold overseas at low prices (developing farmers can’t compete)
Opportunity cost of government finances
Difficult to set price at correct level (information gaps)
Storage & security cost of stockpiles
