Government Policy to Eliminate Excess Demand
Supply must increase to eliminate excess demand.
Points Advantages Disadvantages
Government supplies more ● Excess demand is ● Opportunity cost
of product themselves eliminated (could be spent on
● Government has healthcare or
direct control over education
the production of ● Government not as
product efficient as private
firms
● Government
producing the
product
disincentivises
private firms from
producing the
product
Government provides ● Private firms more ● Subsidy is an
subsidies efficient than gov opportunity cost
● Producer’s revenue
increases
● Excess demand
eliminated
The government can sell ● Excess demand ● You need previously
previously stored stock eliminated stored stock in order
● Gov revenue to sell it
● Can only sell
non-perishable
products
● Expensive to store
stocks =>
opportunity cost
, Government Policy to Eliminate Excess Demand
Demand must increase in order to eliminate excess supply.
Points Advantages Disadvantages
Government buys excess ● Excess supply is ● Opportunity cost
supply and stores it eliminated (could be spent on
● Government revenue healthcare or
increases if sold education)
when there is excess ● Only for
demand non-perishable
● Producer’s revenue products
increases ● Cost of storing is
high => opportunity
cost
Government buys excess ● Producer’s revenue ● Waste of resources
supply and destroys it increases
● Excess supply
eliminated
The government can buy ● Excess supply ● Illegal - Dumping is
excess supply and sell stock eliminated selling products
abroad ● Gov revenue below the cost of
their production
abroad, unfair
competition
Government pays producers ● Excess supply ● Opportunity cost
not to produce eliminated (could be spent on
● No waste with the healthcare or
same expense education
● Producer’s revenue
increases
The Consequences of the Minimum Wage
Advantages Disadvantages
Government imposes a ● Employed workers ● Government faces
minimum wage get a wage increase the problems of real
unemployment as
excess supply of
labour is created
● Firms face increased
costs, less output is
produced
● More unemployed
workers who earn no
income
Supply must increase to eliminate excess demand.
Points Advantages Disadvantages
Government supplies more ● Excess demand is ● Opportunity cost
of product themselves eliminated (could be spent on
● Government has healthcare or
direct control over education
the production of ● Government not as
product efficient as private
firms
● Government
producing the
product
disincentivises
private firms from
producing the
product
Government provides ● Private firms more ● Subsidy is an
subsidies efficient than gov opportunity cost
● Producer’s revenue
increases
● Excess demand
eliminated
The government can sell ● Excess demand ● You need previously
previously stored stock eliminated stored stock in order
● Gov revenue to sell it
● Can only sell
non-perishable
products
● Expensive to store
stocks =>
opportunity cost
, Government Policy to Eliminate Excess Demand
Demand must increase in order to eliminate excess supply.
Points Advantages Disadvantages
Government buys excess ● Excess supply is ● Opportunity cost
supply and stores it eliminated (could be spent on
● Government revenue healthcare or
increases if sold education)
when there is excess ● Only for
demand non-perishable
● Producer’s revenue products
increases ● Cost of storing is
high => opportunity
cost
Government buys excess ● Producer’s revenue ● Waste of resources
supply and destroys it increases
● Excess supply
eliminated
The government can buy ● Excess supply ● Illegal - Dumping is
excess supply and sell stock eliminated selling products
abroad ● Gov revenue below the cost of
their production
abroad, unfair
competition
Government pays producers ● Excess supply ● Opportunity cost
not to produce eliminated (could be spent on
● No waste with the healthcare or
same expense education
● Producer’s revenue
increases
The Consequences of the Minimum Wage
Advantages Disadvantages
Government imposes a ● Employed workers ● Government faces
minimum wage get a wage increase the problems of real
unemployment as
excess supply of
labour is created
● Firms face increased
costs, less output is
produced
● More unemployed
workers who earn no
income
