market intervention

Question 1

What is meant by government intervention?

Answer 1

• The government could introduce a max price for a product to prevent the market price going above that price
• On the other hand he could introduce a minimum price to prevent firms charging below that price

Question 2

What would happen to the supply and demand curve graph if the minimum price is set below the equilibrium?

Answer 2

• Doesn’t have an impact on the market as theres no binding regulatory min price

Question 3

What would happen to the supply and demand curve graph if the minimum price is set above the equilibrium?

Answer 3

This causes the demand to fall and supply to exceed demand

Question 4

How would someone go about resolving the min price being set below equilibrium?

Answer 4

• Seller would have to offer lower prices until all sellers can find a buyer

Question 5

What would happen to the supply and demand curve graph if the max price is set above the equilibrium?

Answer 5

Doesn’t have an impact on the free market as there is non binding regulatory max price

Question 6

What would happen to the supply and demand curve graph if the max price is set below the equilibrium?

Answer 6

This would mean demand exceeds supply

- Means not every buyer is able to find a seller

Question 7

How would someone go about resolving the max price being set below equilibrium?

Answer 7

• Consumer would offer a price thats above the equilibrium. Buyers would bid up until this is met yet this can only work if its a free market