Price Caps: Cure or Curse?

Another method of price intervention available to governments to address market failure, price caps are often controversial. Recent examples include: mobile roaming charges in the EU, payday loans, pharmaceuticals and (often discussed) rent controls.

You need to be able to evaluate the arguments for and against this method and show that you understand the potential problems that they may face.

Take a look at these resources and articles:

Tutor2U summary: https://www.slideshare.net/mobile/tutor2u/tutor2u-government-intervention-maximum-prices

Payday loans: http://www.tutor2u.net/economics/blog/price-cap-introduced-for-the-uk-payday-loans-market

Housing rents: http://www.theguardian.com/money/2015/nov/17/generation-rent-young-adults-housing-ladder-2025

Housing rents: http://www.theguardian.com/world/2016/mar/14/young-families-priced-out-rental-markets-in-two-thirds-uk

Assessing Price Caps

   

   

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

alchoholminprice

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:

http://www.bbc.co.uk/news/uk-wales-30352183

http://www.theguardian.com/society/2014/feb/10/minimum-alcohol-pricing-save-860-lives-study

http://www.theguardian.com/society/2015/jun/28/minimum-alcohol-pricing-cuts-serious-crime-canada

http://www.theguardian.com/news/datablog/2012/mar/23/alcohol-minimum-price-supermarket

Guide to Units:

Alcohol-units-guide1.jpg_44373248_alcohol_units_inf629