Price support

(noun)

A subsidy or a price control with the intended effect of keeping the market price of a good higher or the quantity consumer higher within a market.

Related Terms

Examples of Price support in the following topics:

  • Price Supports

    • Price supports are subsidies or price controls used by the government to artificially increase or decrease prices in the agriculture market.
    • However, the government may implement price supports that artificially consume some of the consumer surplus (in , this is 200 units).
    • Agricultural economics is a highly complicated market as a result of these price supports and controls, particularly from the perspective of subsidization and price control.
    • This chart, in conjunction with the one below, illustrates the way in which price supports can alter supply and overall consumption.
    • It demonstrates the effect of implementing a price support on a basic supply and demand chart.

  • In the 1980s and 1990s

    • The law reduced support prices, and it idled 16 to 18 million hectares of environmentally sensitive cropland for 10 to 15 years.
    • The new law retained high and rigid price supports for certain commodities, and extensive government management of some farm commodity markets continued, however.
    • The law also ordered that dairy price supports be phased out.
    • Price supports for peanuts and sugar were kept, and those for soybeans, cotton, and rice were actually raised.
    • Under the new law, government supports would revert to the old system in 2002 unless Congress were to act to keep market prices and support payments decoupled.

  • Farm Policy of the 20th Century

    • Farm prices were high as demand for goods increased and land values rose.
    • The government also adopted a system of price supports that guaranteed farmers a "parity" price roughly equal to what prices should be during favorable market times.
    • These food programs helped sustain urban support for farm subsidies for many years, and the programs remain an important form of public welfare -- for the poor and, in a sense, for farmers as well.
    • But as farm production climbed higher and higher through the 1950s, 1960s, and 1970s, the cost of the government price support system rose dramatically.
    • rice supports and deficiency payments applied only to certain basic commodities such as grains, rice, and cotton.

  • Subsidies and Income Supports

    • When governments want to ensure their citizens have access to healthy foods at reasonable prices, a variety of governmental supports are provided to the industry to ensure it maintains low costs of production and high output.
    • This is generally in the form of subsidy and income supports, which alleviate some competitive dynamics and operating expenses to maintain reasonable price points in the market economically.
    • These subsidies play a large role in enabling higher supply at lower price points, supporting the domestic agricultural industry.
    • Nutrition: Another interesting side effect of subsidies and the artificially reduced price of food is obesity and overeating.
    • Environmental Implications: As food prices reduce distribution increases, thus driving an environmental externality which already existed even further.

  • Evaluating Policies

    • Agriculture requires a vast support system and a great deal of oversight, addressing industry threats and utilizing policy-based tools.
    • Agriculture requires a vast support system and a great deal of oversight, as the consumption of grown foods poses a huge safety threat alongside a critical need for the health and survival of a civilization.
    • Price Floors/Ceilings: Price floors provide a minimum price point for a given product while price ceilings create a maximum price point.
    • These are used to ensure appropriate pricing in a given industry (see ), and are often used in agriculture to control price points.
    • This is useful in controlling food prices, reducing waste, enabling efficiency and avoiding biosecurity issues.

  • Deriving the Labor Demand Curve

    • If an employee of a customer support call center can take eight calls an hour (the MPL) and each call earns the company $3, then the MRPL is $24.
    • At a price of $10, the company will hire workers until the last worker hired gives a marginal revenue product of $10 .
    • The prices of other factors of production: The change in the relative price of labor will increase or decrease demand for labor.
    • The price of the firm's output: Since the price of the output is a component of MRPL, changes will shift the demand curve for labor.
    • If the price that a firm can charge for its output increases, for example, the MRPL will increase.

  • Regulation of Natural Monopoly

    • Average cost pricing: As the name implies, this regulatory approach is defined as enforcing a price point for a given product or service that matches the overall costs incurred by the company producing or providing.
    • Price ceiling:Another way a natural monopoly may be regulated is through the enforcement of a maximum potential price being charged.
    • A price ceiling is a regulatory strategy of stating a specific product or service cannot be sold for above a certain price.
    • In short, the government can provide financial support via subsidies to new entrants to ensure the competitive environment is more equitable.
    • In these circumstances the regulatory approaches above (price ceilings, average cost pricing, etc.) are even more critical to ensuring consumers are protected.

  • Impacts of Policies and Events on Equilibrium

    • These include factors such as consumer preferences, the price of inputs, and the level of technology.
    • This is an event that suddenly changes the price of a commodity or service.
    • When the U.S. chose to support Israel during the Yom Kippur War, the Organization of Arab Petroleum Exporting Countries (OAPEC) responded with an oil embargo, which increased the market price of a barrel of oil by 400%.
    • When prices rise, a nominal amount of money becomes a smaller real amount of money, which means that the real value of money in the economy falls and the interest rate (i.e. the price of money) rises.
    • In this case, a negative supply shock raises prices and lowers output in equilibrium.

  • Analysis of Price Discrimination

    • Price discrimination is present in commerce when sellers adjust the price on the same product in order to make the most revenue possible.
    • Second degree price discrimination: the price of a good or service varies according to the quantity demanded.
    • By using price discrimination, the seller makes more revenue, even off of the price sensitive consumers.
    • Premium pricing: uses price discrimination to price products higher than the marginal cost of production.
    • Gender based prices: uses price discrimination based on gender.

  • Price Ceilings

    • A price ceiling is a price control that limits how high a price can be charged for a good or service.
    • A price ceiling is a price control that limits the maximum price that can be charged for a product or service.
    • An example of a price ceiling is rent control.
    • By setting a maximum price, any market in which the equilibrium price is above the price ceiling is inefficient.
    • For a price ceiling to be effective, it must be less than the free-market equilibrium price.