This is a big story in the run up to the 2017 General Election. The Conservatives (traditionally a less interventionist, free market party) are proposing to impose a price cap to address ‘rip-off’ energy prices.
Consider these issues:
- Why is this being proposed?
- How would it work?
- Will the policy achieve its aims or is it just another example of short-sighted politics getting in the way of markets?
- Are there any other ways of achieving a more efficient outcome in the market?
- Can behavioural theory help us understand the issues and what can be done?
Tory’s plan energy price cap
How will price caps work?
Isn’t this Labour’s idea?
Audio clip: Could a price cap stifle competition?
It’s not just taxes that affect prices. The UK has long debated imposing a minumum price for alcohol. The articles below give an excellent overview of the issues in this context.
Consider these questions:
- Explain the market failure here. What evidence can you use to support your view?
- Can you draw a diagram to represent the market failure?
- How would a minimum price work? Draw a diagram to illustrate the theory.
- What are the limitations of this method of price intervention?
- Are there alternatives or complementary strategies that could be used?
Some further reading:
Guide to Units: