Which of the following is NOT associated with minimum price legislation?
Answer Details
Minimum price legislation is a policy where the government sets a lower price limit for certain goods or services, meaning they cannot be sold below this set price. It is often intended to protect producers, ensuring they receive fair compensation and maintaining industry standards.
When a minimum price is set above the equilibrium price, it typically leads to several economic effects:
Wastages of resources: This can occur because at the artificially high price, producers might overproduce as they want to profit from the higher price, leading to excess production that isn't effectively utilized or sold.
Excess supply: This means that the quantity supplied exceeds the quantity demanded because the price is higher than what consumers are willing to pay. Thus, the market experiences surplus products.
Unemployment: In some cases, particularly in labor markets, setting a minimum price (like minimum wage) can result in employers reducing hiring or cutting jobs because of higher wage costs, leading to unemployment.
Excess demand is NOT associated with minimum price legislation. Excess demand occurs when the price is set too low, leading to a situation where the quantity demanded exceeds the quantity supplied. This situation is commonly related to maximum price controls, not minimum price legislation.