| Why may a Maximum Price be set in a Market? | -Governments may want Consumption of a Merit Good go Up, or make Necessity Goods more Affordable [Food, Rent, Water] |
| Why may a Minimum Price be Set Up? | -These are set to ensure that Suppliers will get a Fair Price |
| What happens if a Price Minimum is Set
1. Above the Price Equilibrium
2. Below the Price Equilibrium | 1. Setting it Above will lead to an Excess Supply situation where Demand is much Less. The Government, to avoid the Stockpiling of the Excess Supply, will have to Buy it at the Minimum Price.
2. This will lead to Nothing |
| What would the Government Spend if a Minimum Price is set Above the Equilibrium? [In a Supply Demand Diagram] | -The Government will have to spend, at the Minimum Price Level, Points A and B which show the Intersection of the Minimum Price and the Supply/Demand Curves. Then the Q of Point A and B. Those are the Points of Concern |
| How can Minimum Prices be used to Restrict Monopsony Power? | -They will make a Set Price that Suppliers will Enjoy, and make sure Firm that’s a Monopsony can’t Negotiate Lower and Lower Prices |
| What are the Advantages of Maximum Prices? | -Promotes Fairness by having More People able to Buy Certain Goods
-Able to prevent Monopolies to Exploit Consumers |
| What are Disadvantages of Maximum Prices? | -Demand being Higher than Supply means that Some People may not be able to Buy the Product
-Governments may need to have a Rationing Scheme to Allocate the Good
-Black Markets may be set up - Supply Issues! |
| What are the Advantages of a Minimum Price? | -Producers to have a Minimal Income which can have Investment flow in
-Stockpiles can be used when Supply Plummets, or as Aid |
| What are the Disadvantages of Minimum Prices? | -Consumers will be paying a Higher Price
-Resources that make the Excess Supply can be used Elsewhere - Inefficient Use of Resources
-Government Spending can be used in Other Areas rather than buying up the Stockpile
-Destroying the Excess Good may just be a Waste |
