We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

IB Price Floors Commentary Essay

Price floors are instruments that are used by the government to raise the minimum price at which the goods can be sold at, hence increasing the quality of life of the people that are producing the good.

Rice from Thailand was being sold at 13,00 thousand baht, however the price floor that the government has introduced has pushed the lowest price for rice up to 15,000 baht which is significantly higher than the previous price. This will cause the supply curve to shift to the right as shown in diagram 1 below.

The effect of the price floor is shown in diagram 2 below.

Before the government decided to add the price floor, the market equilibrium was at quantity Qe at the price Pe. The government decides to impose a minimum price of Pmin. This is done to increase the revenue of the farmers of rice, however this creates a new problem. At the new price of Pmin, only Q1 will be demanded, however Q2 will be supplied. If the government decides that it is not going to intervene any further, the quantity that is consumed will actually be reduced from Qe to Q1.

We will write a custom essay sample on IB Price Floors Commentary specifically for you
for only $16.38 $13.9/page

Order now

The excess supply that is generated will create problems. As the farmer whave an excess supply from Q1 to Q2. They will try to get rid of the stock, even if it means that they have to sell it at a price that is lower than the market price that is set by the government. To resolve this issue, the government needs to intervene and buy all the stock that cannot be sold. This will reduce the amount of surplus that exists in the market.

Rice is a staple good in Hong Kong; many families depend on rice to make up a majority of their diet.

How to cite this page

Choose cite format:

IB Price Floors Commentary. (2017, Nov 12). Retrieved from https://studymoose.com/ib-price-floors-commentary-essay

We will write a custom essay sample on
IB Price Floors Commentary specifically for you

for only $16.38 $13.9/page
Order now

Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email.

By clicking "SEND", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.

Our customer support team is available Monday-Friday 9am-5pm EST. If you contact us after hours, we'll get back to you in 24 hours or less.

By clicking "Send Message", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
No results found for “ image
Try Our service