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Macroeconomics II –The market system





                            Interference with market prices






               7.1  A Government sets minimum prices

                    Typically to protect suppliers/producers E.g. EU CAP

                    Can also include fighting poverty by setting a minimum wage



                                        P
                                               D                          S
                                                          S> D
                                       P min






                                                                           Q



                    Surplus                      E.g. Butter mountains in EU CAP

                                                  E.g. does a minimum wage cause unemployment?


                    Waste of resources           E.g. “set aside” payments to farmers in EU

                    Misallocation of             Results in lower economic growth
                     resources


























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