A price floor is a restriction imposed by the government that prohibits the price of a good from falling below a certain level. The most common example of a price floor is the minimum wage but, the government also uses price floors to aid farmers in selling their goods. When the government establishes a price floor, it is usually because the people come to them and ask for help. Normally, the farmers ask for the price of their good to be raise above the equilibrium price.
If the price is set above equilibrium price, then the demand for the good decreases and less people buy the good. The farmers don’t reduce the amount of goods they are making but the public reduces the amount of goods they are buying. The result is a deadweight loss due to overproduction. This overproduction is kind of a result of the government issuing a price floor so to reduce the loss they often buy a portion.
When a price floor is set and the result is the government paying for the unused goods, I my opinion it is a waste of resources. I understand that many farmers are being underpaid for their goods, such as the farmers going on strike a Publix, but the companies buying the goods should have the pay the difference.
A price floor is good, in my opinion, because it alows for less competition from a large group of people. For example the 100 farmers growing corn want everyone to buy their corn so they lower their price and the next farmer lowers his. To me it is more of keep the large group of people making the same product in business, but then it should be argued that the government should put a lock on how many people can grow corn and so on.
ReplyDeleteThe problem is where do you tell publix that it makes too much money. What if publix decides to stop stocking the product? Then the farmland gets dedicated to something else and if demand rises for that product it will take a long time to respond. Then the price will be enourmous. Small subsidies in the shortrun can provide large bonuses in the longrun. Of course this is based on a rise in demand for a particular food item. Just wanted to play devils advocate.
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