Price controls

Give an example of where min and max pricing is used

In Scotland they have imposed a minimum price on all alcohol

In Venezuela there is a max price on basic food goods to prevent food shortages

Draw a minimum pricing diagram

Draw a maximum pricing diagram

Draw backs of implementing a minimum price

If demand is inelastic it may have very little effect and only erode consumer welfare and will not solve market failure

Minimum pricing is regressive and will worsen inequality

High prices may lead to individuals turning to the black market to purchase this good

Imperfect information? - Gov may set minimum price too high or too low resulting in resources still being allocated above the social equilibrium or collapsing causing firms to shut down however if government intervention buy then producers will increase their revenue

Drawbacks of using a max pricing

Results in excess demand - Max pricing massively benefits those who can access the good or service at the reduced price but now there are those who now cannot purchase this good as there is little incentive for producers to supply due to low prices

This could lead to individuals turning to black markets to access this good

Hard to enforce and ensure this good is not exceeding the max price

Imperfect information could lead to the government setting the max price too low resulting in very little provision of this good/ service and a massive excess

Will cost government lots of money to potentially subsidise firms that cannot make a profit at this price