Question 20N.1.SL.TZ0.2a
| Date | November 2020 | Marks available | [Maximum mark: 10] | Reference code | 20N.1.SL.TZ0.2a |
| Level | SL | Paper | 1 | Time zone | TZ0 |
| Command term | Explain | Question number | a | Adapted from | N/A |
Explain the impact of a price floor on market outcomes.
[10]
Marks should be allocated according to the paper 1 markbands for May 2013 forward, part A.
Answers may include:
- definition of price floor
- diagram to show the effect of a price floor
- explanation that a price floor can lead to excess supply in the market, inefficient resource allocation, government measures to dispose of a surplus and welfare impacts
- examples of a price floor being used.
NB A price floor to reduce consumption of a demerit good can be fully rewarded if the candidate approaches the question in this way.
This question was generally well answered by candidates with some effectively explained theory on the effect price floors (minimum prices) on markets where they are used. The strongest responses considered the impacts on consumers, producers and governments in terms of higher prices, increased revenues and the cost of intervention buying. An effective use of the minimum price diagram was important to illustrate the answer as was an effective real-world answer and many students used agricultural markets to do this.
