328 PART • Producers, Consumers, and Competitive Markets However, two points should be kept in mind First, when the price of a good that has a significant opportunity cost is forced to zero, there is bound to be reduced supply and excess demand Second, it is not clear why live organs should be treated differently from close substitutes; artificial limbs, joints, and heart valves, for example, are sold even though real kidneys are not Many complex ethical and economic issues are involved in the sale of organs These issues are important, and this example is not intended to sweep them away Economics, the dismal science, simply shows us that human organs have economic value that cannot be ignored, and that prohibiting their sale imposes a cost on society that must be weighed against the benefits 9.3 Minimum Prices As we have seen, government policy sometimes seeks to raise prices above market-clearing levels, rather than lower them Examples include the former regulation of the airlines by the Civil Aeronautics Board, the minimum wage law, and a variety of agricultural policies (Most import quotas and tariffs also have this intent, as we will see in Section 9.5.) One way to raise prices above market-clearing levels is by direct regulation—simply make it illegal to charge a price lower than a specific minimum level Look again at Figure 9.5 (page 324) If producers correctly anticipate that they can sell only the lower quantity Q3, the net welfare loss will be given by triangles B and C But as we explained, producers might not limit their output to Q3 What happens if producers think they can sell all they want at the higher price and produce accordingly? That situation is illustrated in Figure 9.7, where Pmin denotes a minimum price set by the government The quantity supplied is now Q2 and the quantity demanded is Q3, the difference representing excess, unsold supply Now let’s determine the resulting changes in consumer and producer surplus Those consumers who still purchase the good must now pay a higher price and so suffer a loss of surplus, which is given by rectangle A in Figure 9.7 Some S Price F IGURE 9.7 PRICE MINIMUM Price is regulated to be no lower than Pmin Producers would like to supply Q2, but consumers will buy only Q3 If producers indeed produce Q2, the amount Q2 − Q3 will go unsold and the change in producer surplus will be A − C − D In this case, producers as a group may be worse off Pmin A B P0 C D D Q3 Q0 Q2 Quantity