Advantages of a maximum price | Black market & a maximum price | Calculations & a maximum price | Ceiling Price | Maximum Price Control | Reasons for a maximum price
What would the difference between Q and Qs indicate?
The change in the quantity supplied after a maximum price is imposed.
In the interest of lower income groups would the government set a maximum or minimum price on items of mass consumption?
A maximum (ceiling) price.
Referring to the graph, fully explain the consequences of a Maximum Price Control on the market for cycle helmets. Include the following: (i) quantity demanded before and after the price control (ii)quantity supplied before and after the price control (iii)a problem the price control might create and a possible solution for the problem outlined.
The consequences of the Maximum Price Control on cycle helmets is that the quantity demanded before the price control was 4000 cycle helmets and after 5000 cycle helmets. The quantity supplied decreases from 4000 cycle helmets to 3000 cycle helmets. A problem created by the price control is a shortage of 2000 cycle helmets. A black market could arise because some customers are willing to pay a higher price that the legally set price of £30. Possible solutions to the shortage could be first-in-first-served, rationing or the government could give producers a subsidy and increase supply.
What is a maximum price control (ceiling price).
A maximum price set by the government does not allow price to rise above a certain level. It could be set to ensure households or low incomes are able to buy certain goods and services. It will only be effective when it is set below the equilibrium price. It leads to shortages.
(i) How much has the quantity of cycle helmets being supplied to the market changed? (ii) What was the change in total value of sales after the maximum price was imposed?
(i) Q vs Qs, 4 000 vs 3 000 = 1 000 helmets decrease. (ii) (P x Q) vs (Pmax x Qs) = £40 x 4 000 vs 30 x 3 000 = £160 000 vs £90 000 = £70 000 decrease
How would you calculate the change in the total value of sales after a maximum price is imposed?
Work out (P x Q) difference (Maximum price x Qs)
Explain why a black market is illegal.
A black market is not regulated and not taxed. People charge prices above a government set maximum price or below a government set minimum price. A black market can involve the sale of illegal /harmful /stolen goods.