Advantages of a maximum price | Black market & a maximum price | Calculations & a maximum price | Ceiling Price | Maximum Price Control | Reasons for a maximum price
(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
A government measure that does not allow to price to automatically move back to the equilibrium as it would in the free market because laws of regulations prohibit this is termed a:
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.
Describe and explain the advantages of a maximum price control.
A maximum price control will lower the price and make the good or service more affordable, and there is no cost to the government.
A maximum (ceiling) price control is set in the interests of the __________ and to be effective must be set __________ the equilibrium price.
consumer; below. A maximum price is a price control set by government prohibiting the charging of a price higher than a certain level, it is set in the interests of consumers. If the government places a maximum price at a price above the equilibrium, the market will automatically re-establish itself because to be effective a maximum price control needs to be set below the equilibrium.
Explain how a government price control measure is aimed to protect the interests of producers?
The government sets a minimum price control (floor price) to protect producers from volatile prices in world markets. A minimum price control is where the market price is not allowed to fall below a certain level by the government. To be effective a minimum price is set above the equilibrium price that will encourage producers to increase the quantity supplied because they are more able to cover their costs because they are earning higher revenue and it is more profitable to produce the good or service.
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)