<PRICE FLOOR>

--THINK AHEAD--

CHANGE THIS TO THE TAXI PRICE RISING IN UK EXAMPLE, OR MINIMUM WAGE EXAAMPLE, SCHOOL ONE IS NOT NEEDED AND CONFUSED THE STUDENTS

"Imagine the government suddenly raised the had to charge TWICE the current tuition fees."

Unit statement of inquiry

"Using real-world examples, evaluate the view that price floors (minimum prices) should never be used"

--DEFINITION--

A government may in some situations set a legal MINIMUM PRICE for a particular good; this is also called a PRICE FLOOR.
"It means that the price that can be LEGALLY received by sellers of the good MUST NOT BE LOWER than the legal minimum price."

--THINK AHEAD--

"The UK government is set to raise the minimum taxi fare in London by 5.5%. Why do you think this is?

--RATIONALE--

A ‘PRICE FLOOR’ is a form of government intervention primarily SET TO PROTECT PRODUCERS, as the government may decide that THE MARKET PRICE IS TOO LOW for them to earn a sustainable income. ESPECIALLY SMALL OR VULNERABLE PRODUCERS WHO WOULD STRUGGLE TO SURVIVE AT VERY LOW PRICES.
As such, price floors are USUALLY PLACED ON PRODUCER GOODS, such as agricultural products (milk, wheat, and sugar), certain labour markets (minimum wage), and sometimes raw materials, which can all be described as “ESSENTIAL INCOME SOURCES” for PRODUCERS WHO CAN’T SURVIVE IF PRICES FALL TOO LOW.

--SKETCH IT--

"If the government sets the minimum price below equilibrium, what will happen to the quantity demanded and the quantity supplied?" Sketch it on your whiteboard!!!

--CONSEQUENCES--

--SKETCH IT--

"When an effective price floor is introduced to a market, can you show how it impacts the price, quantity demanded, quantity supplied, and quantity transacted?" Sketch it on your whiteboard!!!

--MARKET IMPACTS--

--WELFARE IMPACTS--

--SKETCH IT--

"When an effective price floor is introduced to a market, can you show how it impacts the total social surplus?" Sketch it on your whiteboard!!!

"DON'T ERASE!!!"

--THINK AHEAD--

"Look at the images below. Can you find the reasons why a price floor might be justfied in the farming industry?"

--AGRICULTURE--

--RATIONALE: AGRICULTURE--

Due to the VOLATILITY and INELASTIC NATURE of the SUPPLY & DEMAND of AGRICULTURAL COMMODITIES, the INCOME that farmers receive is HIGHLY UNPREDICTABLE. This can LEAD TO POVERTY, LARGE UNEMPLOYMENT, and POTENTIALLY ISSUES WITH FOOD SECURITY.
Therefore, the government will set a price floor and guarantee that they will buy any surplus output left at that price, in effect becoming a customer.

--SKETCH IT--

"Using the welfare diagram that you already have, can you add to it to show the impact of gov't purchases on the market?" Sketch it on your whiteboard!!!

--THINK AHEAD--

"Imagine you felt sorry for your best friend and out of pity bought all his unsold ugly novelty socks, which he has priced way too high; what would you do with them?"

--MARKET IMPACTS--

As mentioned, the volatility and inelastic nature of the supply & demand of agricultural commodities mean the income that farmers receive is highly unpredictable. As such, governments often impose minimum prices, and directly purchase the surplus, so as to guarantee the farmer's income.

--WELFARE IMPACTS--

CS falls from 'abc' to 'a'
PS rises from 'def' to defbcg', so TSS rises by 'g'
GOV'T SPEND is area 'cgheij' , overall loss to society is 'cgheij' minus 'g' = 'cheij'

--STAKEHOLDER IMPACTS--

--THINK AHEAD#1--

"Just as we protect farmers to ensure food security, we must protect workers with a living wage to ensure job security. Both are essential for a stable and functioning society." "Do you agree or disagree?"

--THINK AHEAD#2--

The Nobel Prize-winning economist Garry Becker concluded that: "All crime is economic, and all criminals are rational.", "Can you think how this relates to income inequality and crime rates?"

--LABOUR MARKET--

--PRIMER TASK--

Go to this LINK and read about the new fast-food worker $20 minimum wage bill in California, then scroll down to the comments and find at least 3 negative consequences that are mentioned.

--DEFINITION: MINIMUM WAGE--

A MINIMUM WAGE is a piece of LEGISLATION SET BY GOVERNMENT that stipulates a MINIMUM PER/HOUR RATE OF PAYMENT.
https://wageindicator.org/salary/minimum-wage/minimum-wages-per-country
https://tradingeconomics.com/country-list/minimum-wages

--RATIONALE: MINIMUM WAGE--

INCOMES in the FREE-MARKET are DETERMINED by the QUANTITY and QUALITY of the IN-DEMAND PRODUCTIVE RESOURCES THAT YOU OWN.
Therefore, as the OWNERSHIP of these RESOURCES is NOT EQUALLY DIVIDED, it is INEVITABLE that there will be INCOME INEQUALITY and DISPARITY IN LIVING STANDARDS.
As such, governments aim to ENSURE that even the LOWEST PAID JOBS pay a SUFFICIENT INCOME to AFFORD THE WORKER A 'DECENT QUALITY OF LIFE', hence the government in many countries have legislated a MINIMUM WAGE aimed at ensuring that these workers earn enough income to satisfy their basic needs.

--STAKEHOLDER IMPACTS--

The minimum wage RAISES THE COSTS OF PRODUCTION for users of low skilled workers, which reduces their willingness to supply their product, CREATING UNDERPRODUCTION,
In addition, the labour market doesn't clear, leaving a surplus of labour, and UNEMPLOYMENT INCREASES.
Furthermore, we see the EMERGENCE OF A BLACK MARKET for illegal workshops and underpayment.
Finally, it is often the case that the QUALITY OF THE LABOUR INCREASES, as the LIMITED JOBS AVAILABLE compels workers to BECOME MORE COMPETITIVE, in order to be more ATTRACTIVE TO EMPLOYERS given the SURPLUS.