Price controls, tariffs and quotas
Applications of demand and supply
● Price controls
○ From mid-2000, Venezuela has been dependent on food imports but
has weak currency reserves
○ Falling oil prices made the government increase the money supply and
expand price controls to prevent inflation
○ Rising costs priced firms out and encouraged a black market
○ Nationalisation forced firms to lower prices
● Tariffs and quotas
● Taxes and subsidies
Price controls
● Minimum prices lead to excess demand
● Rent controls can be a disincentive for landlords and
may cause a lower quality of rental properties
● Whether minimum wage increases unemployment is
contentious - may impact people trying to find work
but a larger benefit for those in work
○ Intensive vs extensive margins
Market intervention
● Leads to the transfer of surplus from consumers to producers and vice versa
● Deadweight loss is surplus which is “lost” - not converted to consumer /
producer surplus or govt revenue following a change in the price or quantity
Tariffs
● A tariff is a tax on imported goods
● Tariffs transfer consumer surplus to:
○ Domestic producer surplus
○ Tariff revenue
○ Deadweight loss
● Causes a loss of consumer surplus and
efficiency
● Looks at partial equilibrium - does not take
the impact on other industries / objectives
into account
Applications of demand and supply
● Price controls
○ From mid-2000, Venezuela has been dependent on food imports but
has weak currency reserves
○ Falling oil prices made the government increase the money supply and
expand price controls to prevent inflation
○ Rising costs priced firms out and encouraged a black market
○ Nationalisation forced firms to lower prices
● Tariffs and quotas
● Taxes and subsidies
Price controls
● Minimum prices lead to excess demand
● Rent controls can be a disincentive for landlords and
may cause a lower quality of rental properties
● Whether minimum wage increases unemployment is
contentious - may impact people trying to find work
but a larger benefit for those in work
○ Intensive vs extensive margins
Market intervention
● Leads to the transfer of surplus from consumers to producers and vice versa
● Deadweight loss is surplus which is “lost” - not converted to consumer /
producer surplus or govt revenue following a change in the price or quantity
Tariffs
● A tariff is a tax on imported goods
● Tariffs transfer consumer surplus to:
○ Domestic producer surplus
○ Tariff revenue
○ Deadweight loss
● Causes a loss of consumer surplus and
efficiency
● Looks at partial equilibrium - does not take
the impact on other industries / objectives
into account
