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Transcript of Price Floors
Change in consumer expenditure:
Change in revenue (gov aid):
Pf x (Qs-Qd) Calculations The price floor MUST be above the equilibrium price to be effective Consequences Original equilibrium at q*,p*
Change in producer income (revenue)
Change in social surplus down
Elasticity of good determines surplus/ revenue changes What Happens in a Price Floor? Producers-
Sell more at higher price
Loses tax dollars (ex. health/education)
Deal with bankrupt farmers
Lose a lot of surplus
Higher prices but less product
Pay for buying/storing surplus
Foreign "domestic" firms-
Complete with lower priced goods (bankrupt)
Social Surplus (welfare) Lose Protect producers by promising higher prices and possibly higher revenue
Provide a minimum wage for unskilled workers
To decrease the consumption of demerit goods Why Have a Price Floor? Government can buy up the excess supply
Store, Spoil, or Sell
Quantity supplied only Qd Solving the Excess Supply Problem A price floor on labor where producers: employees and consumers: employers
Increase the wage of unskilled worker
May increase labor productivity
Cutbacks on non-wage benefits (ex. paid holidays)
causes excess demand and unemployment
raises firms costs shifting supply resulting in a higher price of a good Surplus Production at Qd
Social- Up Revenue PED:
Good Another Example http://www.guardian.co.uk/news/datablog/2012/mar/23/alcohol-minimum-price-supermarket