Answer to Question #91415 in Microeconomics for Lynette A Thomas

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, what will be the predicted outcome?

Answer 1

By imposing a cab flow the prices will increase and this will lead to an end to increase in quantity

supplied and a decrease in quantity demanded. There will be surplus of fish because fishermen will be willing to supply them at the imposed price than customers are willing to purchase them. The better policy would be to propagate the demand for fish in the market as this would lead to an increase in price without inefficiencies of a surplus. Alternatively, the government can offer the fishermen wage subsidies to increase the price the get for the fish without raising prices for the customers.