Page 100 - F1 - AB Integrated Workbook STUDENT 2018-19

Chapter 7

Interference with market prices

6.1 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 resources Results in lower economic growth

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