Maximum Pricing

Question 1

What is a maximum price ?

Answer 1

A fixed price set below market equilibrium price by the GOVT

Question 2

Why are maximum prices set by the GOVT ?

Answer 2

To increase the affordability of necessity goods and services

Question 3

Explain the impacts of a maximum price on a diagram

Answer 3

Price falls from P1-Pmax
Q demanded increases from Q1-QD
Q supplied falls from Q1-QS

Question 4

Where do we find the excess demand on the Max price diagram ?

Answer 4

QDQS

Question 5

Where do we find producer revenue on the diagram ?

Answer 5

P1AQ10 to PMBQS0

Question 6

How do consumers react to a Maximum price ?

Answer 6

:) as long as they can acess the supply as it is very scarce

:( if they cant access the product due to the very high demand and low supply causing long wait times

Question 7

How do Producers react to a Maximum price ?

Answer 7

:( they see lower supply and revenues due to lower prices they have to set

Producers may have to leave that country due to low price making ability

Question 8

How does the GOVT react to a Maximum price ?

Answer 8

:) if they are hitting their aims

:( as producers may leave the country which may lead to higher unemployment

This may create a black market where people are willing to pay above the level just to have access to it