minimum price

• What is a minimum price in economics?

  A price floor
• A minimum price is typically set above the market equilibrium
• A minimum price is always set above the equilibrium price in a market.
• What is one reason governments set a minimum price in a labor market?

  To ensure decent wages
• A minimum price in the labor market is called a minimum wage
• Classical economists argue that a minimum wage causes real wage unemployment.
• Steps the government may take to address excess supply caused by a minimum price:

  1️⃣ Intervention buying

  2️⃣ Storing the excess stock

  3️⃣ Burning the excess stock

  4️⃣ Dumping the excess stock abroad
• Storing excess supply is cost-effective for governments.

  False
• What is the effect of a minimum price on supply and demand in a market?

  Excess supply
• Intervention buying involves the government purchasing excess supply at the minimum price
• A minimum price increases consumer surplus.

  False
• What is one negative consequence of dumping excess supply abroad?

  Foreign competition suffers
• A minimum price imposes a deadweight loss
• Selling excess supply below the minimum price is not allowed
• What is one method used in the EU to reduce excess supply caused by minimum prices?

  Land set-aside
• Consumers benefit from higher prices caused by a minimum price.

  False
• Why do producers like a minimum price?

  Higher revenues
• A minimum price can reduce government popularity due to higher consumer prices
• A minimum price can distort efficient market outcomes.