Explain the impact on consumers, producers and the government of a price floor being introduced in an agricultural market.

Evaluate the view that a price ceiling is an ineffective policy to protect low-income consumers.

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

Answers may include:

• definition of price floor
• diagram to show the impact of a price floor on an agricultural market
• explanation of how a price floor leads to a higher price and lower quantity demanded from consumers, and a higher price to producers increases quantity supplied because it increases revenues and an opportunity cost to governments because of the expense of buying surplus production
• examples of agricultural markets.

A maximum of [6] should be awarded if a candidate has only considered one stakeholder. A maximum of [8] should be awarded if a candidate has only considered two stakeholders. All three stakeholders are needed to reach level 4.

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

Answers may include:

• definition of price ceiling
• diagram to show the impact of a price ceiling on the market for a necessity good
• explanation of how a price ceiling leads to excess demand/shortage for a necessity good and leads to problems like queues, parallel markets and corruption
• examples of the use of price ceilings
• synthesis or evaluation.

Evaluation may include: the benefits a price ceiling might bring to low-income consumers if the ceiling is managed through an effective alternative rationing system and how some consumers will gain significantly through a price ceiling even if others lose.

This question was generally well answered by students with a clear explanation of how producers gain from a minimum price and consumers and the government lose out. The best answers used clear, accurate diagrams, showing changes in consumer and producer surpluses. Effective answers also showed the cost to governments of intervention buying and surplus stock management. The very best answer used effective real-world examples such as intervention buying in agricultural markets.

There were many good answers to this question with the strongest responses clearly explaining how a price ceiling can benefit low-income consumers in markets for goods such as housing, basic food, and energy. Many candidates evaluated the policy well by considering how maximum prices can lead to parallel markets, shortages and corruption. The best answers used effective diagrams and well-developed real-world examples.