Question

In terms of ethics how would you interpret the decision by the government to impose a binding price floor (in part (a) above) from a Consequentialist point of view? What about from a Deontological perspective? Briefly explain

Answer 1

A binding price floor is defined as a price floor at at price above the equilibrium price. Hencein such cases the price isn't allowed to reach the equilibrium and creates a surplus of supply.

A consequentialist point of view is defined as judging the ethics of a decision based upon the consequences of the decisions.

Hence, according to a consequential point of view, we can see that although there is increase in price for the producers, there also exists extra produce which never gets sold. In general the 'good' that the increase in price produces is far greater than its downfalls. Hence if we look at it in aggregate, imposing a binding price floor is ethically right.

A deontological point of view is says that the morality of an action should be based on whether that action itself is right or wrong under a series of rules, rather than based on the consequences of the action.

In the case of a binding price floor, there is always a dead weight that is lost as compared to a competitive equilibrium. Also, a binding price floor in case of a minimum wage creates a loss of employment for workers who are just entering the workforce and can offer to work for less in a competitive market. Hence due to these reasons it is ethically wrong to impose a binding price floor.