Theory question 104
Price Determination(a) Define minimum price control.
(b) Identify any three reasons governments should introduce minimum prices for agricultural produce.
(c) Outline any three disadvantages of imposing minimum price control on agricultural produce.
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(a) Minimum price control is the fixing by government of a price, above the equilibrium, below which a commodity may not be sold (a price floor).
(b) Any three: to protect farmers' incomes from exploitation by middlemen and buyers; to stabilise farm incomes against price fluctuations; to encourage production and food security; to raise the living standard of farmers; to help farmers plan; to reduce rural-urban drift.
(c) Any three: surpluses and waste if storage is poor; government must spend money buying up surpluses; higher food prices for consumers; inefficient farmers are protected; black markets/selling below the legal price; resources may be wrongly allocated.
A price floor creates a surplus that must be handled.