Government Intervention - Maximum Prices

Maximum prices or similar forms of price controls are certainly topical once again! Until recently, housing rent controls were just about the only applied example of price capping in markets that made it into exam questions. But now we see instances of possible price ceilings in energy, telecommunications and calls for wage caps in the labour market.

Once again, start with the basic analysis of where a maximum price must be set to have an impact on the market. Then analyse with reference to elasticity of demand and supply. Look to be able to critically evaluate price controls as a form of intervention – which stakeholders gain and which lose out? Are there better alternative policies?