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SS2: ECONOMICS - 2ND TERM

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Definition of Price Control

This is the means directed by the government to control inflation where prices are regulated on the laydown rules. It is the implementation of an economic intervention to manage certain goods. Price control is also called price legislation where the government fixes the price of essential commodities. The fixing of the price of a commodity in Nigeria is carried out by the Price control board

A price ceiling is the price set on maximum price control and price floors are the prices set on minimum price control. 

Objectives of Price Control

1. To discourage fluctuation of price of essential goods

2. To control level of inflation in an economy

3. To discourage exploitation of consumers by the manufacturers

4. To help the income of low income earners

5. To discourage monopoly by some companies

6. To make planning for future output

7. To monitor the profit of monopolists.

Types of Price Control

1. Maximum price legislation:  It is made by the government to guide the people from the effect of inflation. This is where the government fixes prices of goods below the equilibrium price. This is the highest price at which goods and services are to be sold. It is also called Price Ceiling 

2. Minimum price legislation: This is where the price is fixed above the equilibrium. It is normally fixed by the government to protect commodities that have unstable prices

Evaluation Questions

1. Illustrate the types of price elasticity of supply. 

2. Explain the cost elasticity of supply

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Responses

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Evaluation questions

  1. Illustrate the types of price elasticity of supply. 
  2. Explain the cost elasticity of supply

 

Solution

2. Explain the cost elasticity of supply

Cost elasticity of supply is the responsiveness of supply to a little change in the cost of production. An increase in the cost of production will result in a fall in supply but a fall in the cost of production will lead to an increase in supply.

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