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Date November 2020 Marks available 10 Reference code 20N.1.SL.TZ0.2
Level Standard level Paper Paper 1 Time zone Time zone 0
Command term Explain Question number 2 Adapted from N/A

Question

Explain the impact of a price floor on market outcomes.

[10]
a.

Discuss the consequences for different stakeholders when the government imposes a price ceiling on a market.

[15]
b.

Markscheme

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.

Answers may include:

NB A price floor to reduce consumption of a demerit good can be fully rewarded if the candidate approaches the question in this way.

a.

Marks should be allocated according to the paper 1 markbands for May 2013 forward, part B.

Answers may include:

Discussion may include: consideration of how the product will be allocated and whether those in need are able to access the good after the imposition of a price ceiling, the effect on the quality of the product, the likelihood of underground (parallel) markets developing.

b.

Examiners report

This question was generally well answered by candidates with some effectively explained theory on the effect price floors (minimum prices) on markets where they are used. The strongest responses considered the impacts on consumers, producers and governments in terms of higher prices, increased revenues and the cost of intervention buying. An effective use of the minimum price diagram was important to illustrate the answer as was an effective real-world answer and many students used agricultural markets to do this.

a.

This question was generally well answered by candidates who often used the rental property market as an illustrative answer. Most students used an effective price ceiling diagram to explain the impact of the policy on consumers, producers and the government. The weakness in some answers was not to fully evaluate the consequences of the price ceiling. For example, the policy is good for the buyers who can actually buy the goods, but large numbers cannot if shortages develop because of the maximum price. Real world examples were applied quite well in this question with rent controls in cities such as New York and Berlin being used. A small number of students got price ceilings and price floors mixed up in parts (a) and (b) and this led to some low marks for those who made this mistake. 

b.

Syllabus sections

Last exams 2021 » Section 1: Microeconomics » 1.3 Government intervention » Price controls » Price floors (minimum prices): rationale, consequences and examples
Last exams 2021 » Section 1: Microeconomics » 1.3 Government intervention » Price controls
First exams 2022 » Unit 2: Microeconomics » 2.7 Role of government in microeconomics » 2.7.3. Consequences of government intervention
Last exams 2021 » Section 1: Microeconomics » 1.3 Government intervention
First exams 2022 » Unit 2: Microeconomics » 2.7 Role of government in microeconomics
Last exams 2021 » Section 1: Microeconomics
First exams 2022 » Unit 2: Microeconomics
First exams 2022
Last exams 2021

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