Producers and consumers only consider their private costs and benefits. The positive externality creates has positive spill over effects, and too little of it is produced/consumed.
-Ensures sellers make enough for their product (e.g. low-income farmers in Thailand have stable income)
-Could help solve poverty (e.g. minimum wage).
If equilibrium price falls below Pmin, there will be Excess Supply.
The government must purchase all excess supply at Pmin.
The government will need to pay (Qs-Qd) X Pmin, i.e. 30 x $40 = $120
Benefit . . . Cost
-Adverse weather makes the good scarce (shift left)
-Favourable weather makes the good plentiful (shift right)
-A monopoly producer decides to put more on the market (e.g. Saudi Arabia)
Goods which are under-consumed because consumers underestimate the benefits of the goods to themselves and society.
-Chinese Sparrow Campaign
-War on drugs- only leading to violence in Central America
-Road warning signs leading to higher accident rates
-Prohibition of Alcohol in the USA
-Tax on rubbish leading to fly tipping
-Common Agricultural Policy: Minimum price caused too much production
Price Volatility refers to the price of a product changing rapidly and unexpectedly in a short period of time.
A per-unit tax is paid per unit of production/sale.
