Min & Max Prices

• Minimum prices

  government decides that free market price is too low for producers to survive, so they set a minimum price of p2
• Advantages of minimum prices

  • increase revenue for producers
  • ensures workers receive fair wages
  • maintains employment
• Disadvantages of minimum prices

  • creates excess supply which government must buy up
  • may create black markets with lower price
  • difficult to enforce
  • opportunity cost
• Maximum Prices

  government intervenes to lower price to p1 to p2 so all can afford
• Advantages of Maximum Prices

  • reduced price for consumers
  • protects consumers from exploitation for necessity goods
• Disadvantages of Maximum Prices

  • creates excess demand so not everyone can buy
  • black markets may form where prices are higher
  • lower quality as firms cut costs to adhere to low price
  • firms may leave market entirely if prices are too low