Evaluate the view that imposing a maximum price for rice is the best way for a rice-importing nation, such as Nigeria, to ensure the affordability of a basic food for its citizens

AQA A-Level Economics Paper 1 June 2025 Insert

Using the data and your knowledge of economics, evaluate the view that imposing a maximum price for rice is the best way for a rice-importing nation, such as Nigeria, to ensure the affordability of a basic food for its citizens. (25 marks)

Plan

• Paragraph 1
  • Argument: on the one hand, a maximum price is the best way to ensure food like rice is more affordable because it guarantees a lower price
  • Diagram: maximum price diagram
  • Evaluation: on the other hand, maximum prices can lead to government failure (excess demand means the government have distorted the market)
• Paragraph 2
  • Argument: on the other hand, a subsidy is a better way to ensure affordability because it can lead to lower prices as well as an increase in quantity.
  • Diagram: subsidy diagram
  • Evaluation: on the other hand, subsidies have a large opportunity cost

On the one hand, a maximum price can be a good way to ensure that basic food like rice is affordable. A maximum price is a price that is set below the market equilibrium, above which it is illegal to sell a good or service. The diagram below shows that a maximum price leads to a reduction in the price of rice from p1 to p2. This lower price causes a contraction in supply and an expansion in demand. The contraction in supply is caused because it becomes less profitable for producers to produce rice, so some might start using their factors of production to produce other goods and services that are more profitable in comparison. The extent to which supply and demand change will depend on both price elasticity of demand and price elasticity of supply. Overall, consumers can benefit from a lower price for rice.

However, a maximum price might be an ineffective way to intervene in the market for food, because food might become affordable but less accessible, especially if the price elasticity of supply (PES) of food is very high. Price elasticity of supply is the percentage change in supply divided by the percentage change in price. Over time, PES increases. Another factor that might influence PES is the substitutability of factors of production. If firms can use the same land to produce other goods and services instead, they are likely to stop producing as much rice. If the PES for food like rice is high, then a lower market price will lead to an a proportionally larger decrease in supply. This causes a significant excess demand for rice, meaning that there will be customers who cannot buy rice due to it being unavailable. This is also an example of a market distortion, which is where a government intervention fails because it moves the market away from its equilibrium, causing total welfare to fall.

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