Minimum prices

• What is meant by a minimum price?

  A minimum price is a price floor for the market - suppliers cannot sell the product legalily at a lower price.
• What does the minimum price diagram look like?

  DIAGRAM BELOW

  
• What may be the cause of a minimum price being set in place?

  • Producers aren’t being given enough money for their good or service, so a minimum price is set to make sure producers are being payed what they deserve.
• As a result of a minimum price being set, what can this lead to?

  A decrease in demand as the good or service has become more expensive and so it could lead to excess supply.
• What are the unintended consequences - government failure - that could arise from a minimum price?

  • Because the price has increased, less people demand the good or service due to it being more expensive.
  • Therefore, there is excess supply.
• What can the government do to for those who can’t afford the new price of the good or service?

  • The government can give the good/service to those who can‘t afford it for free.
  • When there is excess supply, price often falls to clear the excess.
• To take away the excess supply the government can do what?

  • Buy excess stock and either -

  - create stockpiles

  - burn it

  - sell stock to another country
• What are the arguments FOR minimum prices?

  • Reduces negative externalities from heavy alcohol consumption
  • Pubs may benefit from higher minimum prices in supermarkets
  • Can target cheaper, high strength drinks used by younger drinkers.
• What are the arguments AGAINST a minimum price?

  • Minimum price is a tax on responsible drinkers
  • Producers can agree on voluntary policies on alcohol price/strength.
  • Better to raise alcohol duties which will raise extra tax revenue.
• What are the arguments FOR national minimum wage?

  • Protects employees
  • Motivates employees more, therefore, they will take more care and pride in their work which leads to better quality goods and services.
• What are the arguments AGAINST national minimum wage?

  • Increases costs of production for producers.
  • Could cause producers to cut back on labour due to being unable to afford the higher prices, therefore, could harm employees in the long run.