What this lesson teaches
I can show how each intervention changes price, quantity, spending, revenue, consumer surplus and producer surplus.
Syllabus 9570, 2.1.3(b). Government Intervention in Markets: Government intervention in markets can affect the equilibrium price and quantity, consumer expenditure and producer revenue, consumer surplus and producer surplus
Make a guess
A clinic caps its fee, and now 120 patients a day want slots but only 40 are offered. Slots open online at 9am. Who gets them?
- Most of the 120 patients, because the lower fee lets the clinic see more.
- The 40 patients who need medical care the most urgently.
- Whoever books first at 9am, not necessarily those most in need.
Show the answer
Whoever books first at 9am, not necessarily those most in need.
The cap does not create more slots. The sharing method decides who gains, and online booking favours people who are free and online at that moment.
A policy only helps the people who can actually get the good.
A lower official price does not mean everyone who needs the good gets it. With a maximum price, the shortage means some willing buyers go without.
Who gets the limited supply depends on how it is shared out: first-come-first-served, online booking, ballots or eligibility rules. Each method favours different people.
The same question applies to other tools. With a minimum price, which sellers find buyers? With a quota, who gets the permits?
In an exam, this is strong evaluation: ask who the policy is meant to help, and whether they are the ones who gain.
- Key question
- Who actually gets the good?
- Rationing methods
- Queues, ballots, online booking, eligibility.
Worked example: Cheap appointments, but not enough of them
A clinic caps its fee. At the new fee, 120 patients a day want appointments, but the clinic offers only 40. Slots are released online at 9am.
- The 40 patients who book a slot pay less.
- 80 patients who want to book cannot; the cap has not created more appointments.
- Online booking at 9am favours people who are online at that time, not necessarily those most in need.
- Reserving slots for eligible patients, or funding more doctors, would change who is helped. Both cost money.
Watch out for this
A lower official price makes everyone better off.
Only buyers who actually get the good gain. With a shortage, some buyers who want it are left out.
Check your understanding
Under a binding maximum price on concert tickets, which method would most likely get tickets to the fans who value them most?
- None of these guarantees it; each method favours a different group.
- A ballot.
- First come, first served.
Show the answer
None of these guarantees it; each method favours a different group.
Right. Queues favour those with time, ballots are random and online sales favour the fastest. The price cap removes the usual rationing by price.