Friday, March 1, 2019
IB Price Floors Commentary Essay
Price floors are instruments that are apply by the government to raise the nominal price at which the goods sight be sold at, hence increasing the quality of life of the battalion that are producing the good.Rice from Thailand was being sold at 13,00 thousand baht, that 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 leave alone cause the bestow curve to shift to the right as shown in diagram 1 below.The effect of the price floor is shown in diagram 2 below. origin eachy 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, heretofore this creates a immature 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 goin g to intervene whatsoever further, the quantity that is consumed will actually be reduced from Qe to Q1.The excess bring 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 transfer it at a price that is lower than the market price that is clique 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 expect on rice to make up a majority of their diet.