Price support

In economics, a price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level. In economics, a price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level. In the case of a price control, a price support is the minimum legal price a seller may charge, typically placed above equilibrium. It is the support of certain price levels at or above market values by the government. A price support scheme can also be an agreement set in order by the government, where the government agrees to purchase the surplus of at a minimum price. For example, if a price floor were set in place for agricultural wheat commodities, the government would be forced to purchase the resulting surplus from the wheat farmers (thereby subsidizing the farmers) and store or otherwise dispose of it. In a hypothetical market in which supply and demand are such that the equilibrium price and quantity are $5 and 500 units, respectively, and the government then institutes a price floor at $6 per unit: The benefit to producers of the price support is equal to the gain in producer surplus (represented in blue). The cost to consumers of the price support is equal to the loss in consumer surplus (represented in red).