Suggested Answers of BT2 Revision Package - ASKnLearn

Explain how a priceceiling prevents aprice increasePriceSFigure 2P MIN =PSurplusS 1Price FloorMinimum PriceP EQQ EQ SDQuantityHowever, to protect coffee farmers from a loss in revenue, thegovernment may decide to implement a price floor, P MIN . At price P MIN ,the quantity demanded of coffee is Q units but firms are willing tosupply quantity Q S . Thus, a surplus of QQ s .Link back toquestion.Thus, a price floor would prevent prices from declining excessively.A fall in demand and/or a rise in supply would no longer lead to adecline in price but lead to a larger surplus instead. However, thegovernment would nees to remove the surpluses that result fromthis policy by buy ing up the excess supply and selling it during apoor harvest or sell it abroad to other markets. Thus, a highexpenditure is incurred by to subsidise this scheme.ConclusionHence, the government can limit price changes through the use of aprice controls. However, the implementation of ceiling or price floorresults in shortages and surpluses, respectively, which would need tobe addressed through further policy measures.L1 § Answers that explain only one type of price controls.§ Theoretical answers that explain price floor and price ceiling w/ogiving e.gsL3 §Answers that use lack demand theoretical and framework, supply concepts lack content to show or clearly containhow concept price errors floors and price ceilings prevent excessive pricechanges. Appropriate examples are provided§ Clear explanation of how price floors and ceilings prevent pricechanges using examples. Answer may not explain clearly whyprice changes or why these would be considered “excessive”L2 § Use of demand and supply concepts to explain how both pricefloor and price ceilings affect prices. Answers may contain gaps,fail to address issue of price changes directly or may lackexamples.] 3 - 4]9 - 101 – 27 - 85 – 6