Energy Price Cap: Good politics but bad economics?

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?

Too much to drink? Tackling the UK’s alcohol problem…


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:

  1. Explain the market failure here. What evidence can you use to support your view?
  2. Can you draw a diagram to represent the market failure?
  3. How would a minimum price work? Draw a diagram to illustrate the theory.
  4. What are the limitations of this method of price intervention?
  5. Are there alternatives or complementary strategies that could be used?

Some further reading:

Guide to Units: