Y1 33 Price controls and market failure

Question 1

Min price used to solve market failure issues

Answer 1

Price inelastic demand: Addiction, Q does not shift to Q*
Regressive: Price is higher % of poor income
Black market - No regulation, substitutes, gov failure, tax loss
High min price: Firm shut down/moving, firm revenue increase, intervention buying cost

Question 2

Max price used to solve market failure

Answer 2

Shortage: Excess demand
Black market: Unregulated, consumers pay extra for good, tax loss
Enforcement: Admin costs
Price setting: Excess demand externality may still exist, government failure
Cost: May have to subsidise or state provide, gov failure