Effect of maximum price legislation

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1. Explain the role of price as a mechanism for allocating resources in an economy.

2. What would happen if, in order to provide lower cost healthcare, the government decided to set a price ceiling (Pmax) in the health insurance market?

3. What is the effect of this maximum price legislation on the market for health insurance?

4. Briefly explain the situation for both consumers and producers (i.e. healthcare providers).

5. What might the government do to achieve their intended aims (i.e. lower costs and increased quantity)?

6. Briefly explain why Cross Elasticity of Demand (XED) is important for business decision-making.

7. Briefly explain (3-5 sentences) why it usually makes sense for the government to impose taxes on markets (and products) that have an inelastic demand instead of markets with an elastic demand.

Reference no: EM131557655

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