Market disequilibrium - Govt intervention

Govt step in to restrict the free operation of market. Price ceiling or price floor.

Price floor

A legally established minimum price above the market equilibrium.
Sales below price floor not permitted.
Imposed during a period of falling prices.
To ensure producers a higher and stable income
Ensure std of living
Price floor create surpluses govt intervention needed to prevent downward pressure on price. Buy the surplus. Distributed to poor, stored up wasteful if quality deteriorates over time.
Consumers pay a higher price than market eqm.
Consumers pay tax to cover govt support
Amount bought and sold with PF imposed is less than market eqm.

	Created by pr2st almost 13 years ago

International business MIEC Note on MIEC 3: Supply, created by pr2st on 30/11/2013.