Theory question 105
Price DeterminationSection B (answer four questions only from this section)
(a) Outline any two objectives of a price control policy.
(b) Highlight any three effects of a maximum price control policy.
Show the model answer
Model answer
(a) Any two: to protect consumers from exploitation; to make essential goods affordable to the poor; to control inflation; to protect producers/farmers with minimum prices; to stabilise prices; to protect workers with minimum wages.
(b) Any three: shortage (excess demand) because the price is below equilibrium; black markets and hoarding; queues and rationing; fall in supply as producers lose interest; corruption and favouritism in distribution; low-income consumers get the goods more cheaply if supplies are available.
Explanation
A maximum price is set below equilibrium.