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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
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Figure 12 
In part (c) of our case example, the fall in public transport prices leads to an expansion in demand for 
public transport (Figure 12(i)) while the demand for second-hand cars falls (with a new demand line D
1 
in Figure 12(ii)) together with a fall in price. However, the relationship between public transport and the 
market for second-hand cars is likely to be a highly complex and indeterminate one. Thus, people might 
make greater use of public transport while the ownership of cars (including second-hand cars) could 
continue to increase. 
7.3 Price as a signal 
As well as acting as an information system for buyers and sellers in a market, price can also act as a 
stimulant
.
Price information may prompt buyers and sellers to change their behaviour. For example, a price rise 
may encourage firms to divert resources towards producing a good whose price has risen, in order to 
obtain a better reward from their resources.
 
8
Maximum and minimum prices 
Where 
maximum prices 
are imposed, there will be 
excess demand
: rationing may be necessary, and 
black marketeers may seek to operate. Where 
minimum prices 
are imposed, producers will make 
excess 
supply
.
8.1 Price regulation 
The regulation of prices provides an illustration of how demand and supply analysis can be applied. 
Governments might try to control prices in two ways. 
(a) 
They might set a 
maximum price
(or 
price ceiling
) for a good, perhaps as part of an 
anti-inflationary economic policy. 
(b) 
They might set a