QUESTION 5: MICROECONOMICS Discuss in detail the causes of market failure - NSC Economics - Question 5 - 2024 - Paper 2

Minimum prices can have significant impacts on the economy:

• Surplus Production: When minimum prices are set above equilibrium, producers may supply more than consumers are willing to buy, leading to excess supply.
• Increased Prices: Consumers may face higher prices for essential goods, reducing their purchasing power and standard of living.
• Inflation Concerns: Minimum prices in agriculture can lead to price inflation if producers are forced to pay higher prices for raw materials.
• Market Distortion: Surpluses may result when goods required by the market are produced but not sold, leading to waste or destruction of inventory.
• International Trade: Minimum price policies might conflict with trade agreements or lead to allegations of dumping if excess products are sold internationally at lower prices.