Answer to Question #65585 in Microeconomics for Matt White

Question

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework, predict the effects on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended consequences in the market?

c. Suggest a policy other than the price floor, working within the framework of demand and supply, to make it possible for small fishing villages to continue.

Answer 1

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.
a. After the imposing a price floor the price will increase, quantity demanded will decrease and quantity supplied will increase.
b. With the enactment of this price floor for fish there will be surplus of fish in the market.
c. The best policy other than the price floor is subsidising of producers to make it possible for small fishing villages to continue.