Theory question 104
Price Determination(a) Outline any four objectives of a price control policy.
(b) Highlight any four effects of a maximum price control policy.
Show the model answer
Model answer
(a) Any four: to protect consumers from exploitation; to make essential goods affordable to low-income earners; to control inflation; to protect producers' income (minimum price); to ensure fair distribution of scarce goods; to stabilise prices.
(b) Any four: shortages (excess demand); long queues; black markets; hoarding; rationing becomes necessary; reduced supply as producers are discouraged; corruption and favouritism in distribution; poor quality goods.
Explanation
A maximum price is fixed below equilibrium, so shortages follow.