Maximum and Minimum Prices (A Level Economics)

Maximum and minimum prices (A Level Economics) are the government’s bluntest tool: a law that says the price may not go above this line, or below that one. A maximum price, or price ceiling, is set below equilibrium to make something affordable. A minimum price, or price floor, is set above equilibrium to protect sellers or to cut consumption. Both stop the market clearing, and the exam wants the shortage or the surplus that follows, drawn and measured. This page gives you both diagrams, the comparison table, the UK examples examiners use, a worked example in pounds and three exam-style questions with the answers derived.

Spec map: where price controls sit on your board

The numbering follows AQA’s specification (4.1.x in the PDF, 3.1.x on the web), Edexcel Issue 2, OCR v3.0 (June 2026) and the Cambridge 2026-2028 syllabus, all read in September 2026. Indirect taxes and subsidies are on the market failure page. The basic diagram is on the demand and supply page.

What you must be able to do

• Draw a maximum price below equilibrium and read off the shortage.
• Draw a minimum price above equilibrium and read off the surplus.
• Explain why a control set on the wrong side of equilibrium does nothing.
• Give the purpose of each control and a real UK example.
• Explain what happens to the shortage or surplus: queues, black markets, waste, government purchases.
• Evaluate both controls, using elasticity, the time period and the alternatives.
• Explain buffer stocks as a floor and a ceiling working together.

A maximum price: the ceiling and the shortage

A maximum price is a legal ceiling. Sellers may not charge more than it. To have any effect it must sit below the equilibrium price. At the lower price buyers want more and sellers offer less, so quantity demanded is above quantity supplied. The gap is the shortage, and the quantity actually traded falls to what sellers will supply.

The price is no longer allowed to ration, so something else does. Queues and waiting lists: time rations instead of money. A black market: the good is resold above the ceiling to those who would have paid more anyway. Falling quality: sellers who cannot raise the price cut what they offer for it.

A minimum price: the floor and the surplus

A minimum price is a legal floor. Sellers may not charge less than it. To have any effect it must sit above the equilibrium price. At the higher price buyers want less and sellers offer more, so quantity supplied is above quantity demanded. The gap is the surplus, and the quantity actually traded falls to what buyers will take.

What happens to the surplus depends on the design. Under a guaranteed farm price the government buys and stores it. Under minimum unit pricing for alcohol nobody buys it: sellers sell less at the higher price, which is the point. Under a minimum wage the surplus is workers who want a job at the floor and cannot find one.

Price ceiling or price floor: the comparison in one table

UK examples the examiner will recognise

Buffer stocks: a floor and a ceiling working together

A buffer stock scheme sets both lines. When the harvest is big and the price would fall below the floor, the agency buys the surplus and stores it. When the harvest fails and the price would rise above the ceiling, the agency sells from the store. Farmers get a stable income and consumers get a stable price. The catch is the middle line. If the floor is set above the long-run average price, the agency buys every year and sells never, and the store grows until the money runs out. Cambridge names buffer stocks in 3.2.5 and OCR lists them in 2.11.

Worked example — a £30 cap on concert tickets

A town’s concert hall is told by the council to cap ticket prices at £30. Quantities are in hundreds of tickets, prices in pounds.

1. Demand: P = 60 − Q. Supply: P = 20 + Q.
2. Free market: 60 − Q = 20 + Q, so Q = 20 and P = £40. That is 2,000 tickets at £40.
3. At the £30 cap: quantity demanded = 60 − 30 = 30, quantity supplied = 30 − 20 = 10. In tickets: 3,000 wanted, 1,000 offered.
4. Shortage = 30 − 10 = 20, so 2,000 people want a ticket and cannot get one. The price is not allowed to ration them, so a queue or a lottery does it instead.
5. The resale price: with only 1,000 tickets, the buyer of the last one would have paid 60 − 10 = £50. Resellers can charge £50, a margin of £20 a ticket, and £20,000 in total goes to them rather than to the hall.
6. The hall’s revenue: 2,000 × £40 = £80,000 before the cap, 1,000 × £30 = £30,000 after. Both price and quantity sold fall.
7. The welfare lost on the 1,000 tickets no longer sold is the triangle between demand and supply from 10 to 20: ½ × (£50 − £30) × 1,000 = £10,000. That is the deadweight loss of the cap.

The cap made 1,000 tickets cheaper for the people who got them, and made 1,000 tickets disappear. That trade-off is the whole evaluation, and every number in it changes if the cap moves.

Exam-style questions

Q1: A market has demand P = 60 − Q and supply P = 20 + Q. The government sets a minimum price of £50. Calculate the surplus. Then calculate sellers’ revenue before and after the floor if nobody buys the surplus, and the cost to the government if instead it buys the surplus at the floor. (6 marks)
A: At £50 quantity demanded = 10 and quantity supplied = 30, a surplus of 20 (2). Before: 20 × £40 = £800. After, with sales at 10: 10 × £50 = £500, so revenue falls, because demand over this range is elastic (2). If the government buys the surplus: 20 × £50 = £1,000 of public money, and producers now sell all 30 units for £1,500 (2).

Q2: In the same market, explain what happens if (a) a maximum price of £45 is set, and (b) a maximum price of £20 is set. (4 marks)
A: (a) £45 is above the £40 equilibrium. At £45 quantity supplied (25) exceeds quantity demanded (15), so the price falls on its own until the market clears at £40. The cap never binds and changes nothing (2). (b) At £20 quantity supplied = 20 − 20 = 0. Nobody supplies at that price, so the good disappears from the legal market entirely (2).

Q3: Evaluate the case for a cap on private rents in a city where rents are rising fast. (15 marks)
A: Get the diagram and the numbers down before any evaluation.

• Knowledge and application: a rent cap is a maximum price below the equilibrium rent. Diagram: the cap below E, quantity demanded up, quantity supplied down, a shortage of homes to rent.
• Analysis, for: sitting tenants pay less, so real incomes rise and fewer households are pushed out. A cap on increases, rather than on the level, limits the shock without pulling rents below equilibrium at once.
• Analysis, against: landlords sell up, switch to short lets or stop maintaining, so supply and quality fall. The shortage is rationed by waiting lists, references and under-the-table payments. The losers are new tenants, often the young the cap was meant to help.
• Evaluation: short-run supply is inelastic, so the shortage is small at first and grows over years. The effect depends on where the cap sits relative to equilibrium. Alternatives attack the cause: build more homes (supply right) or raise housing benefit (demand right, which raises rents). Judgement: a cap shields current tenants at the cost of future ones. A short-term shield alongside more building, not a substitute for it.

Examiner’s checklist: the mistakes that lose price control marks

• The line on the wrong side. A ceiling goes below equilibrium, a floor above it. On the wrong side it does nothing, and the examiner will ask you why.
• Quantities not read off the line. Qd and Qs both come from the control price, not from the equilibrium. Drop the dashed lines from where the control meets each curve.
• Shortage and surplus muddled. A ceiling gives a shortage (excess demand). A floor gives a surplus (excess supply).
• No consequence. The shortage has to go somewhere: queues, black market, lower quality. The surplus has to go somewhere: stockpiles, waste, unemployment, taxpayer cost.
• No elasticity. The size of the shortage or surplus depends on the slopes. Inelastic supply means a small shortage now, a bigger one later.
• Evaluation without an alternative. Every price control question wants “compared with what”: taxes, subsidies, building more, information.

Key takeaways

• A maximum price below equilibrium creates a shortage of Qd − Qs. A minimum price above equilibrium creates a surplus of Qs − Qd.
• Quantity traded falls in both cases, to the short side of the market.
• The shortage is rationed by queues, black markets and falling quality. The surplus is stored, wasted, bought by the government, or is unemployment.
• Elasticity and time decide the size. Short-run supply is inelastic, so a cap looks harmless at first.
• Buffer stocks use a floor and a ceiling together, and fail when the floor sits above the long-run average price.

FAQ

Q: What is the difference between a price ceiling and a price floor in economics?
A: A ceiling is a maximum price, set below equilibrium, that creates a shortage. A floor is a minimum price, set above equilibrium, that creates a surplus. The names say where the line sits: a ceiling the price cannot rise through, a floor it cannot fall through.

Q: How do I draw the minimum price diagram?
A: Draw demand and supply and mark E. Draw a horizontal line above E labelled P min. Drop dashed lines from where it meets demand (Qd, left) and supply (Qs, right). Mark the gap as the surplus. Figure 2 is the finished version with numbers.

Q: Is rent control on the A Level Economics specification?
A: Not by name on AQA, Edexcel or OCR, but each names maximum prices, and rent is the standard example in extracts. Cambridge names controlling prices in 3.1.3. Treat it as a maximum price with inelastic short-run supply and elastic long-run supply.

Q: Why does a minimum price cause a surplus?
A: The higher price does two things at once. Buyers cut back, so quantity demanded falls. Sellers expand, so quantity supplied rises. The surplus is the gap, and it exists only because the price is not allowed to fall and close it.

Q: Is the minimum wage a minimum price?
A: Yes: a floor in the labour market, with the wage as the price and workers as the sellers. Above the market wage it creates a surplus of labour, which is unemployment. The A Level economics diagrams page has the diagram.

Q: How are maximum and minimum price questions marked?
A: A 4-mark question wants the diagram with the control, both quantities and the gap. An 8 to 12-marker adds a chain about what happens to the gap and one evaluation point, usually elasticity or time. A 25-marker wants two effects evaluated, an alternative policy and a judgement. Board detail is on the revision hub.

Turn the gap into marks

If you still draw the floor under the equilibrium in a timed paper, or lose the marks for what happens to the surplus, one lesson fixes that. Tell me the board and the paper, and I will offer a lesson time within 24 hours. Fees and format: the A Level economics tutor page.