Government rules can have a big impact on how much of a product is available in the market. Here’s how it happens:
Price Floors: Sometimes, the government sets a minimum price for goods. This is similar to how minimum wage laws set the lowest amount workers can be paid. If the government sets this minimum price too high—let’s say at 15, companies might make a lot of that product. However, consumers may not want to buy it at that higher price, leading to extra stock.
Production Quotas: The government may also limit how much of a product can be made. This is meant to keep the market steady. But if producers keep making more than the allowed amount, especially if fewer people want to buy the product, it can create a surplus.
Subsidies: When the government gives financial help to certain businesses, it makes it cheaper for them to produce their goods. This can lead to more products being made. But if people aren’t buying enough, it can cause a surplus. For example, if dairy farmers get help from the government, they might produce more milk than customers are willing to buy at the current price.
These rules can make it hard for the market to adjust, sometimes resulting in extra products that either go to waste or are bought by the government.
Government rules can have a big impact on how much of a product is available in the market. Here’s how it happens:
Price Floors: Sometimes, the government sets a minimum price for goods. This is similar to how minimum wage laws set the lowest amount workers can be paid. If the government sets this minimum price too high—let’s say at 15, companies might make a lot of that product. However, consumers may not want to buy it at that higher price, leading to extra stock.
Production Quotas: The government may also limit how much of a product can be made. This is meant to keep the market steady. But if producers keep making more than the allowed amount, especially if fewer people want to buy the product, it can create a surplus.
Subsidies: When the government gives financial help to certain businesses, it makes it cheaper for them to produce their goods. This can lead to more products being made. But if people aren’t buying enough, it can cause a surplus. For example, if dairy farmers get help from the government, they might produce more milk than customers are willing to buy at the current price.
These rules can make it hard for the market to adjust, sometimes resulting in extra products that either go to waste or are bought by the government.