Even a policy whereby the government buys the surplus eggs and exports them is not without costs to society. The government would probably not be able to export the eggs at the price it paid for them, but at a lower price, which would therefore involve a loss. It might also have serious consequences for the producers of eggs in the country importing the eggs.
If producers were responsible for destroying the surplus, then the suppliers who are able to sell eggs at the price floor would be better off, while those who cannot sell their eggs owing to low quantity demanded would lose out.
Quotas would probably lead to lobbying, bribery and corruption.
Paying farmers not to produce would probably lead to more farmers claiming that they intend producing eggs. Another possible result of binding price floors is that inefficient farmers are kept in business and produce goods of which an excess supply already exists, while other goods have to be imported.
Price floors usually have the following consequences on goods and services where the minimum price is higher than the equilibrium price (or market clearing price):
- A persistent surplus (excess supply) develops.
- Consumers, including poor households, have to pay artificially high prices.
- Inefficient producers are protected and manage to survive.
- The disposal of the market surpluses usually entails further costs to tax payers and welfare losses to society.
- To avoid these unintended consequences, government is forced to increase its intervention in the market and thus impose even more costs on the system.
- Price floors also create winners and losers. Those producers that can sell at the higher price benefit, while consumers lose since they have to pay a higher price. At this higher price, there are fewer consumers of the good or service.
As you can see, government intervention through price ceilings and price floors can have extremely negative consequences.
