Essay Plans

"If there are price controls this will lead to a shortage of goods. This shortage is essentially artificial." Discuss.

SYNOPSIS:

POINTS:

  1. Define market economy.

  2. Illustrate (S/D graphs) how the price mechanism works.

  3. Show how if price is below equilibrium then there is excess demand; if above equilibrium, there is excess supply.

  4. If the government fixes a price below the equilibrium there will be a shortage - and a growth in the black market (Wimbledon).

  5. These goods are now scarcer than before - and must now be allocated. Possible options:

    a. First come first served
    b. To sellers favourites
    c. By government rationing

  6. If prices are fixed above equilibrium there will be surplus as in RPM (now outlined) or in the case of labour.

  7. Illustrate how if wages rise above equilibrium (perhaps as a result of union activity) demand contracts and so there is a surplus of labour. If this minimum wage is enforced then unemployment will rise (workers will have priced themselves out of work) - more likely that workers will offer their labour below the going rate (blacklegs).
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