Tatiana gema Minimum price: causes and consequences

Definition Government sets a minimum price above the equilibrium price.

Causes To raise income for producers To protect workers by setting minimum wage

Consequences Prevents producers from reducing the price below it. Also known as a price floor Prices can not go below the floor

Problems Producers will find that they have surpluses Will be tempted to try to get around price control and sell their excess supply for lower price. ( usually between equilibrium and price floor) Government will intervene and try to eliminate the excess supply by buying the product causing the demand curve to shift to the right and creating a new equilibrium point Or governement will store, destroy or sell ( abroad) the surplus,

maintaining minimum Producers can be limited by quotas restricting supply Government can try to increase demand for a product by advertising or restricting product being imported. (protectionist policies)