Price Controls

Question 1

Price controls definition

Answer 1

A restriction governing a price a market can sell a product at

Question 2

Maximum price definition

Answer 2

A product cannot be sold/bought for a price higher than the specified level

Question 3

What is excess demand?

Answer 3

Quantity Demanded > Quantity supplied

Question 4

Salary cap definition?

Answer 4

A limit placed on the total amount that a firm can pay out to its employees

Question 5

What did the rugby salary cap do in 1999?

Answer 5

• Create financial stability
• Control spiralling club costs
• Help increase competition

Question 6

Minimum price definition

Answer 6

A product cannot be sold/bought for a price lower than the specified level

Question 7

What is excess supply?

Answer 7

Quantity supplied > Quantity demanded

Question 8

Price control issues?

Answer 8

• Deadweight loss
- price controls can prevent some beneficial exchanges from taking place

• Black markets
- Illegal transaction which take place outside of the official market

• Imperfect information
- Government need to have information about the market to set price at right level