Key Diagrams - Maximum Prices and Consumer Welfare

In this revision video we walk through the impact of a maximum price on consumer & producer surplus and the deadweight loss of welfare that results.

Maximum prices as a form of government intervention are becoming more common. A good example is the energy price cap in the UK. This is probably best analysed using cost and revenue curves although you can use supply and demand diagrams.

Discussing the impact on differenteconomic agents including consumers and producersis a good way of scoring high analysis marks. Also consider second round effects – for example what happens to supply if producers leave the market as a result of a stringent price cap?