 | This articleneeds additional citations forverification. Please helpimprove this article byadding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: "Price support" – news ·newspapers ·books ·scholar ·JSTOR(June 2025) (Learn how and when to remove this message) |
Ineconomics, aprice support may be either asubsidy, a production quota, or aprice floor, each with the intended effect of keeping the marketprice of a good higher than the competitive equilibrium level, usually by a government.[1]
In the case of a price control, a price support refers to the minimum legal price a seller may charge, typically placed above equilibrium. It is the support of certainprice 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 surplus goods at a minimum price. For example, if aprice 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.
TheNew Deal popularized the concept in theUnited States during theGreat Depression, although the idea had been used starting in the 19th century.
In the aftermath of World War II, there were basic food commodities shortages, leading to price controls in many countries, includingArgentina. Some nations, such as theUnited Kingdom, kept their wartime rationing systems in place for years.
What was originally meant to be a temporary solution to the Great Depression resulted in price controls for basic foodstuffs in the United States for five decades, with the government producing an annual "Price Support Handbook". This was supported by both progressives in liberal states like New York, as well as conservatives in the Midwest. Price supports began to recede only in the 1980s. During the administration ofRonald Reagan (1981-1989), many Federal price supports were lifted.
In a hypothetical market in whichsupply and demand are such that theequilibrium price and quantity are $5 and 500 units, respectively, and the government then institutes an "intervention price" at $6 per unit:
|
|
 |  |
The benefit to producers of the price support is equal to the gain inproducer surplus (represented in blue).
The cost to consumers of the price support is equal to the loss inconsumer surplus (represented in red).
The cost to the government of the price support is equal to the cost of the surplus in the market (represented in gray).
However, since the consumers ultimately pay taxes for the government to purchase the surplus, the total cost to consumers (in the short run) of the price support is the sum of the loss in consumer surplus and the cost of the government purchasing the surplus off the market.
In other words, consumers are paying$1650 in order to benefit producers$550 so price supports are considered inefficient.
Thedeadweight loss is the efficiency lost by implementing the price-support system. It is the change in total surplus and includes the value of the government purchase, and is equal to $1100.
