Price Controls

Question 1

Evaluation for price controls (5 points)?

Answer 1

• Depends on how much the min / max price is above or below the market equilibrium (the magnitude of the price control)
• Minimum price may have no effect if it’s below the market price (vice versa for max price having no effect too)
• Depends upon the price elasticity of demand and supply
• Depends upon how long the price will be above or below the equilibrium
• Depends on the impact on the costs for firms that use the product as a raw material