Just talks into just price floors

1. Rasika Vuppala
11 IB

3. s
d
P
Q
P min
Q for
demand
Q for
supply
Examples:
• Minimum Wage
• Agricultural
support

4. Effects of Price Floors:
Surplus
Reduced
Market Size
Allocative inefficiency-the
high price inspires
producers to produce
more output causing
marginal cost to be much
higher than the marginal
benefit.
Cost inefficiency- increase in supply causes
increase in cost production which is
inefficient because the extra resources used
could be used for other things.
Informal Markets- some firms might
sell their surplus illegally below the
equilibrium

5. a
c
b
d e
Changes that occur:
• Total revenue for producers:
d+f+e.. Now: d+b
• Consumer surplus decreased
(as they pay more and receive
less) from a+b+c to only a
• Dead weight loss is f+c
f

6. Possible solutions to Surplus
• The government can throw out the excess, but definitely wasting a lot of
money
• The government might buy up the surplus and make up for the company’s
loss
• In my opinion the smartest idea, the government might export that
product and introduce it in a foreign market.