Week 12 Flashcards
Price controls
a restriction governing a price a market can sell a product at
what depends on the form of intervention and how much intervention on price controls in markets
depends on what type of market we are considering
- normal good —> goods market
- luxury good —-> housing market
- merit good —-> agricultural market
- demerit good —-> labour market
why would price control intervention be more influenced in a normal good market than a luxury good market
a normal good is consumed and would affect a lot more people therefore there may be more intervention to produce a fair value
(are consumers being exploited)
(are producers receiving a fair price)
max price definition
a product cannot be sold/bought for a price higher than the specified level
what impacts does max price control have on the market if the max price is set below equilibrium
-market supply will contract (move down the supply curve) and quantity supplied reduces
-market demand will expand (move down the demand curve) and quantity demanded increases
how does max price intervention lead to a market failure if the max price is set below equilibrium
max price leaves the market with excess demand as quantity supplied won’t meet the demand at the price set.
this leads to a market failure as the excess demand will struggle to get the product elsewhere and could be some places like black market…
why does the government care about competition policy ( 2 reasons)
consumers dictate what firms in the market do
