With the help of diagram, discuss whether consumers will benefit from the introduction on a product of an effective maximum price.

Relevant definitions(Key terms)+Formula

首先我们识别出题干中的 key terms-maximum price 并对其定义进行描述,描述完定义后对其condition进行描述。21.jpg

【Define maximum price】

Maximum price is the maximum legal price that a seller is allowed to charge for a product.The price is not allowed to rise above this level but it is permitted to fall below it.

【The condition for maximum price to be effective】

If the maximum price is set above the equilibrium prices, it has no effect,

since the equilibrium remains attainable. It is effective when set below the equilibrium price.

The net gain to consumers is the difference between rectangle A and triangle B.

Another major consequence of maximum price, with or without rationing, is the emergence of the black markets. This is a market in which goods are sold illegally at whatever price equates illegal demand and supply.

Black marketers would buy Q1 at the controlled price of P1 paying the amount measured by rectangle E.

They would sell at the price Pb, earning profits shown by the gray area between Pb and P1. The existence of such a market results in all consumers becoming definitely worse off.

Evaluation (Conclusion)

最后说明consumers 是否benefit存在一些局限性:最高价格的总体影响取决于固定价格是低于还是高于市场均衡价格。


Finally we conclude that overall effect of maximum price depends on whether the price is fixed is below or above the market equilibrium price,

so far the consumer benefit is concerned maximum price can potentially result in an increase in consumer surplus .


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