Theme 1.4 - Max + Min Price

Question 1

What is a maximum price?

Answer 1

Price ceiling applied to particular good/service

Question 2

What is the purpose of a maximum price?

Answer 2

Encourage purchase of merit goods
Increase affordability of necessities

Question 3

What are the benefits of a maximum price?

Answer 3

Lower consumption price
Allows wider + fairer consumption
Prevents monopolies + consumer extortion
Welfare benefits - Necessities + merit goods

Question 4

What are the drawbacks of a maximum price?

Answer 4

May induce shortage
Demand > Supply, not all consumers satisfied
Emergence of black markets
Govt may require rationing scheme

Question 5

What is a minimum price?

Answer 5

Price floor applied to particular good/service

Question 6

What is the purpose of a minimum price?

Answer 6

Discourage prod + cons of demerit good
Reduce demand + increase supply

Question 7

What point must a minimum price be set above in order to be impactful?

Answer 7

The market equilibrium

Question 8

What are the benefits of a minimum price?

Answer 8

‘Gives’ consumers more income
Prevents overbuying of demerit goods
Protects business + industry (In theory)

Question 9

What are the drawbacks of a minimum price?

Answer 9

Higher price for consumers
Market in disequilibrium
Higher tariff necessary on imports in order to maintain high price
What is done with excess produce?