Minimum Price ( Floor Price )
A price set above the equilibrium price below which rms cannot sell / consumers cannot buy
Price
EXCESS SUPPLY S
Pmin Minimum Price
Co ly
ntr pp
ac su
tio
ni in
nd n
em sio
an t en
P d Ex
D
Quantity
Qd Q Qs
- EXPLAIN THE DIAGRAM
• P to Pmin price change
• Contraction in Demand
• Extension in Supply
- Consumer Surplus Reduced
• As the price increases good will become expensive
• Consumer Surplus Reduced
- Proudcer Surplus Reduced
• As price increases more pro ts for rms
• More investments in new technology
Evaluations
01. Opportunity cost to the government when buying the excess supply
( They could have spent this money elsewhere for example on healthcare )
02. Hard to place an accurate minimum price
( Placing an accurate m.pri is dif cult for a government due to information gaps )
( If it’s too close to the equilibrium price producers won’t bene t signi cantly )
( If it’s too high government will have to spend more when buying excess supply )
03.There will be signi cant impacts if the magnitude of the minimum price is high
04. PES
(If the PES is inelastic quantity supplied may not rise immediately as producers may take time to respond
to thisdue to organising factors of production to increase supply )
05. Perishability
( If it’s an agricultural product )
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A price set above the equilibrium price below which rms cannot sell / consumers cannot buy
Price
EXCESS SUPPLY S
Pmin Minimum Price
Co ly
ntr pp
ac su
tio
ni in
nd n
em sio
an t en
P d Ex
D
Quantity
Qd Q Qs
- EXPLAIN THE DIAGRAM
• P to Pmin price change
• Contraction in Demand
• Extension in Supply
- Consumer Surplus Reduced
• As the price increases good will become expensive
• Consumer Surplus Reduced
- Proudcer Surplus Reduced
• As price increases more pro ts for rms
• More investments in new technology
Evaluations
01. Opportunity cost to the government when buying the excess supply
( They could have spent this money elsewhere for example on healthcare )
02. Hard to place an accurate minimum price
( Placing an accurate m.pri is dif cult for a government due to information gaps )
( If it’s too close to the equilibrium price producers won’t bene t signi cantly )
( If it’s too high government will have to spend more when buying excess supply )
03.There will be signi cant impacts if the magnitude of the minimum price is high
04. PES
(If the PES is inelastic quantity supplied may not rise immediately as producers may take time to respond
to thisdue to organising factors of production to increase supply )
05. Perishability
( If it’s an agricultural product )
fi fi fi fi fi fi fi
