A Price Floor Only Benefit China Government

A Price Floor Only Benefit China Government Prices often play an important role in the economy and they are easy to change too. Therefore, sometimes prices are unfairly high for the buyers, and sometimes it would unfairly low for the sellers. In situation like this, government would set a legal price on how high or low a price may go with a product. Recently, China government sets a price floor on fuel, which is $40 per barrels. China government sets a price floor because it wants to protect the domestic supply. In the beginning of January in 2016, a new price floor of 261 Yuan a barrel on fuel, approximately forty dollars. In addition, a price floor is a product price set above the market equilibrium price, it is the lowest legal price for a product to sold.

For instance, suppose the equilibrium price for fuel is one dollar per gallon, but because of the low price, many producers have extremely low income; as a result, government decided to set a legal price floor of three dollars per gallon, which means buyers have to pay two more dollars per one gallon of gasoline. Therefore, oil producers will be willing to produce more and buyers are willing to purchase at the price floor. (McConnell 61). However, a price floor will often end up the same result as the example above. Nevertheless, in this case, China government sets a price floor on the fuel market causes an opposite result. Because the sell cost is low, many oil producers are not equipped to operate and compete in a crude environment below forty dollars per barrel. Meanwhile, the buyers are also having to pay more because of the new regulation and high