Unit 2.7 · Role of Government in Microeconomics
Price Controls
AO2AO4Diagram required
Syllabus Requirement
Price ceilings (maximum prices) and price floors (minimum prices), their purposes, and effects on markets.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
Summary
Price controls are legal limits set by the government on the prices of goods and services to address issues of affordability for consumers or income for producers. They include price ceilings, which cap prices below market equilibrium, and price floors, which set minimum prices above equilibrium. While these controls can promote equity, they often lead to market inefficiencies such as shortages and surpluses.