According to our textbook, a price floor is a government-imposed limit on how low a price can be charged. I found an article on the agriculture law website that illustrates this concept. The article is titled “Dairy Income to Suffer, Says Federation.”
The effects of the USDA decreasing the level of the dairy price support program are large for farmers. Interestingly, the effects of lowering the levels of the program go far beyond just milk (i.e. how/where to store excess butter). According to the article, the USDA decision will also cause additional sales of surplus cheese to the government; consequently, the different class levels (milk, cheese, butter, etc.) will be affected as well.
With this price floor, just like the minimum wage example in the book, some people are being helped by this new policy and some people are being hurt by it. However, the question then must be asked…is it worth it? Are we sacrificing the inferior for the superior? Or is the government doing more harm then good?
3 comments:
One of the things that makes economics hard is that economists are very diligent about looking for repercussions of policy that are not obvious at first glance.
That is illustrated in this post where it notes that price floors for raw milk affect the markets for all the things that are made out of milk as well.
As to the last paragraph of the post, and the comment as well, price floors (or ceilings for that matter) do benefit some people at the expense of others. It's always hard to judge on net whether those benefits exceed the costs for the country as a whole. But ... keep in mind what I said about public choice. These measures are politically feasible if they extend large benefits to a small group (who will vocally support the measure) while spreading the costs widely (so that people who are hurt are not hurt enough to bother being vocal).
I really like the part about putting necessities in the back of the store. Its one more way managers control the set of choices you can select from.
I don't think we would have no corn without price floors. I think that if we removed the floor, farmers would go out of busines one by one, but before we got to zero the price of corn would rise enough to keep some of them still in business.
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