6.2.4 Welfare effects of a minimum price

Just as the fixing of a maximum price, the fixing of a minimum price has an impact on the welfare of the groups involved (see above figure).
The price increase affects consumers. They suffer a loss in the amount of the orange and purple area. The original consumer surplus is reduced to the pale green triangle.
The producers, on the other hand, make both a loss (pink area) because of the reduction of quantity and a profit (purple area) from the price increase.
As the minimum price rises, sales decrease and the pink area grows. At the same time, the purple area only grows until the decrease in quantity outweighs the increase in price. Above a certain limit, producers also suffer a net welfare loss through a minimum price.
The overall welfare is reduced in any case.

(c) by Christian Bauer
Prof. Dr. Christian Bauer
Chair of monetary economics
Trier University
D-54296 Trier
Tel.: +49 (0)651/201-2743
E-mail: Bauer@uni-trier.de
URL: https://www.cbauer.de