Question

What is minimum price ceiling? Explain its implications.

Explain the meaning of ‘minimum’ price ceiling and its implications.

Answer 1

Price floor means the minimum price fixed by the government for a good in the market. The government fixes this price on agricultural products and food grains in particular. A minimum price is fixed which the traders must pay to the farmers in the wholesale market.

Thus, the income of the farmer is regulated and a continuous production is assured.

Effects of price floor:-

1. The government ensures to buy the full produce of the farmers which are not sold in the market at the price floor. Hence, they are able to produce the maximum level of output.

2. Farmers are ensured with the minimum returns as their products are completely sold in the market at comparatively higher price. This leads to an increase in their level of income.

3. Because of price floor, consumers and traders in the market are forced to pay higher price than the equilibrium price.

4. The interests of the farmer are protected by the government and they are forced to store the excess supply as a buffer stock including the storage cost of their product.

5. The cost incurred by the government is borne by consumers and traders in the form of tax, i.e. the consumption of excess supply at higher price in the market.