...Government Price Controls Answer the following questions fully and clearly. Be sure to explain why you answered as you did, stating the logical reasons for reaching your conclusions. 1. There are federal and state laws setting minimum wages for workers. There are also city laws setting price ceilings for housing rents. a. Why are there laws setting minimum wages for workers and maximum rents for housing? The laws set for minimum wages protect unskilled workers from exploitation (Gorman, 2008) and provide them with a “living wage” (Livingston, 2011). The idea of a minimum wage was created in Australia and New Zealand to reduce poverty (Gorman, 2008). Maximum rents for housing was created to protect tenants from increased monthly rent cost by landlords (Block, 2008). Formally, rent control is known as the Emergency Tenant Protection Act; which was created during World War II in New York City (Block, 2008). b. Why are there no laws setting maximum wages for workers or minimum rents for housing? Setting a maximum wage law will not only hinder the economy but hurt high wage workers purchasing power. When the economy is booming, most workers receive raises, however if there is a cap placed on the wages, workers would max out their earnings. If workers production levels in one hour is 10 times what they receive in compensation, the only party benefiting in the transactions in the company. Maximum wages would also hurt the market for luxury items. Workers may be reluctant...
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...Microeconomics Government Market Intervention Price Control A price ceiling is a maximum legal price which sellers can charge for a product. A price floor is a minimum legal price which buyers must pay for a product. Note that price controls are not always binding. That is, they may not have an effect on the market. For example, if a price floor is set below the market equilibrium price then the price floor is not binding. Price controls are a crude form of government intervention. When price controls are binding they prevent market clearing (i.e. they cause excess supply (surplus) or excess demand (shortage)). Price Support The government imposes a price support by offering to purchase an unlimited quantity of a good at a given price. Historically this has been implemented as a way to guarantee farmers a minimum price for their produce. Since farmers can always sell to the government at the offered price, they won’t sell to anyone else for less. Thus a price support is very similar to a price floor. The important difference is that with a price support the government buys any unsold produce so there is no market surplus. If you’re wondering what happens to the produce that the government buys you can google: “government surplus cheese underground cave”. Seriously. Price Subsidy A price subsidy is a price set by the government which it guarantees by paying the difference between the market price and the guaranteed price to producers for every...
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...Inflation Introduction and Definition Inflation is a phenomenon which happens world wide. It causes many problems to countries all over the world. Inflation is the rise in the general level of prices. When inflation occurs, each ringgit of income will buy fewer goods and services than before. Inflation will reduce the "purchasing power" of money. However, not all prices rise during inflation. There are some prices which are relatively constant while some prices are decreasing. There are two types of inflation. The first type is called the demand-pull inflation. This type of inflation usually happens when there are changes in the price level that are caused by an excess of total spending beyond the the economy's capacity to produce. Demand-pull inflation is commonly described as "too much money spent chasing too little goods". The second type of inflation is called cost-push inflation. Cost-push inflation is also called "supply-shock inflation" is caused by rise in the supply or cost. This happens due to natural disasters or increased prices of inputs. The theory of cost-push inflation explains the rising of prices in terms of factors that raise per-unit production costs at each level of spending. Rate of inflation is measured using Consumer Price Index(CPI) which can be calculated using the formula given below: [pic] The normal rate of the inflation is varies from country to country. In Malaysia, the normal rate of inflation...
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...Government regulations in a new market (Author’s name) (Institutional Affiliation) Macro economic theories Microeconomic involves the study of people and the decisions of businesses in an economy. The decisions regard the allocation of scarce resources to the unlimited wants of humans. Microeconomics concentrates on the supply and demand of goods in the economy (Frank & Bernanke, 2004). The forces of demand and supply control the prices of goods and services. On the contrary, macroeconomics looks at the behavior of the economy in general. It does not concentrate on particular companies and industries. Macroeconomics looks at the factors that affect the economy. On the other hand, microeconomics focuses on how a particular company can maximize profits while experiencing low costs. It deals with how firms can maximize their profits. Microeconomics aims to analyze market mechanisms to establish the price of goods in an economy with scarce resources. It deals with market failure, where the market does not produce satisfactory results. Microeconomics describes the theoretical conditions that are necessary for a perfect market competition (Mankiw, 2012). In this, case the demand increases when the prices of the commodity goes down. Legalizing marijuana will impose taxes on the product and prices will go up. The prices of marijuana will increase, it will affect the demand of the product will fall. Supply of marijuana at this moment will...
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...intervention, which is the price ceiling and price floors. Price ceiling is actually set below the equilibrium price by lowering the price of the goods so that consumers can be able to afford the goods, then price floors which is set above the equilibrium price by increasing the price of some goods in order to protect the interest of some certain producers, and also to see the efficiency and inefficiency of both the price ceiling and price floors. Efficiency which is the economics allocating there resources in a good manner for example government rent control policy and inefficiency, is when the resources are not proper allocated an its example which is the black market and then some graphs that represent the price ceiling and price floors with their explanations and then lastly the real world example of price ceiling and evaluating the effective policy. Price ceiling and price floor are both price controls and also for government to interfere in the free market that changes the market equilibrium price. Price ceiling basically happens when the government puts a legal limits on how high a product price can be and it also disallow prices to exceed a certain maximum that causes shortages in order to be affordable by the consumers, there will be a shortage of goods when ever the price is set below the market price, in this situation demand will be higher or supply will be shortage because consumers will be demanding for more goods due to the cheaper price of the goods, also if the...
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...classification by degree of government control. The three economic systems are Command Economy System (Socialism). A system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods will be offered for sale. The command economy is a key feature of any communist society. Example of country that under this economy system are North Korea, Cuba and Russia. Market Economy System (Capitalism) is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning. This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country's economic activity. Example of the country are Hong Kong and USA. Mixed Economy System is an economic system that features characteristics of both capitalism and socialism. A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. This type of economic system is less efficient than capitalism, but more efficient than socialism. Example of the country are Malaysia and Japan. Command Economy System (Socialism) The Command economy system is the economy system that completely control by the central government. Under this economy...
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...Word Count: 997 Government wants to end sales quota in sugar industry CHENNAI: Food and agriculture minister Sharad Pawar said on Friday he favoured ending the government's role in fixing sales quota in sugar industry, adding that the government would consider withdrawing controls on the sector after assessing the likely sugar production in 2010-11 crop year. The minister said a decision on decontrolling the sugar industry could be taken if there is good production in the next crop year starting October. At present, the government controls the sugar industry right from fixing the support price of sugarcane and allocating the monthly quota for mills to sale in the open market. "We welcome the minister's statement on decontrol of the sugar market, which was long-awaited," Indian Sugar Mills Association (ISMA) deputy director general M N Rao told a news agency. Sugar industry is heavily regulated, right from cane to sale of sugar. There is a minimum support price for sugarcane and over and above that there is a state advisory price. Sugarcane command area is determined and approved by state governments. Sugar mills can't sell freely in the open market as there are quotas for open sale. "There are multiple spokes in the wheel now. Besides, with nearly 12 to 15 crore people involved with the sugar business, we need to see in what form and shape the decontrol happens. Ideally, total decontrol is the best," K Jayachandra, joint MD of Empee Sugars and Chemicals, told TOI. ...
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...adopt policies to decrease the inflation rate. India and china have a very fast economic growth with fast population. The government and the central bank have to work beside to curb the inflation using two main policies are monetary policy and fiscal policy. In the monetary policy the central bank has to manage the many supply in the market and also control and decline the inflation, in terms of fiscal policy the government try to see the tax level to impact in the inflation rate. Monetary policy has more effect than fiscal policy, but also there are challenges implementations of the policies. Argument 1(monetary policy) India has faced a hyperinflation in years 2009 to 2011 to unprecedented level. The inflation in India affects the saving of the Indian household which decreased the value of saving in that nation. The monetary authorities are trying to impact the money supply directly without creating deformation in the economy by changes CRR (cash reserve ratio), repo and reverse repo rate. The main objective is to maintain price stability. The RBI (reserve bank of India) trying to control the money supply by using which called contractionary monetary policy that focus in decreasing the money supply, increasing the interest rate, declining in investment expenditure , declining in aggregate demand and then the price level will fall. To make the price fall the Indian central bank selling the securities through OMO (open market operations) also it raises CRR and SLR (Statutory...
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...money into it. Government intervention can lead to a decline in merit goods production, some people would rather buy a better car, a better house at some point, and do not want their children to receive better education. However, such as tobacco...
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...RESEARCH ARTICLE Huayi Yu China’s House Price: Affected by Economic Fundamentals or Real Estate Policy? © Higher Education Press and Springer-Verlag 2010 Abstract Many theory and empirical literature conclude that house price can reflect economic fundamentals in the long-term. However, by using China’s panel data of 35 main cities stretching from 1998 to 2007, we find that there is no stable relationship between house price and economic fundamentals. House price has deviated upward from the economic fundamentals since government started macro-control of the real estate market. We consider that the mechanism between the house price and economic fundamentals is distorted by China’s real estate policy, especially its land policy. Meanwhile the policy itself is an important factor in explaining the changes of China’s house price. Then we estimate the dynamic panel data model on house price and the variables which are controlled by real estate policy. The result shows: land supply has negative effects on house price; financial mortgages for real estate have positive effects on house price; and the area of housing sold and the area of vacant housing, which reflects the supply and demand of the housing market, has negative effects on house price. We also find some differences in house price influence factor between eastern and mid-western cities. Finally, we propose policy suggestions according to the empirical results. Keywords house price, economic fundamental, real estate policy...
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...Rent control effects to the market “Rent control is the second effectively way to destroy a city than booming it” says an expert in economy. Information shows that rent control is policy presents by the government using to reduce stress of rental to people who has economic problem by limiting rental price. However, vary effects coming up while the policy executing. The purpose of this report shall evaluate effects of rent control by short term and long term though the theory. 1.1 As can be seen from the diagram 1.1, we can see the theoretically supply & demand relationship to the market. Assuming the graph below shows the status of the market before rent control; mass tenants are satisfying by suppliers, namely, proprietors. It has both advantage and disadvantages: people are spending price a slice bit higher than the equilibrium point; the market remains stable but the problem of virtual-high price makes trepidation. RENT CONTRL EFFECTS IN SHORT TERM 1.2 The diagram show that the assumed scenario of the market after rent control: The rental price has shifted to a lower position adjusted by the government. We do believe because of real property market lack of elasticity, because of the number of building cannot be changed in a short term, thus it won’t cause shortage. Plus, tenants couldn’t be sensitive enough to the price and it takes time to make people adjusting their residential. In conclusion, the supply and demand relationship...
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...Pros and Cons on Prescription Medicine Prescription Drugs have its place in our world and society today. By making the government control the prices it makes it actually increase the affordability of the product instead of having other drug companies battle it out seeing who has the highest prices. With the government controlling drug prices it will keep prices stable for long periods of time or until some kind of economic depression or something else comes in and changes the price. These kind of method has helped us during the war times when the market cannot work so well that the government stepped in and took some control over the prices to keep everything in balance and in hope of nothing catastrophic happens to the economy. It will also...
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...appropriateness of government intervention in the economy, which is a highly debatable topic. For example, free market economists would argue that there should be a strict limitation on government intervention as it often leads to an inefficient allocation of resources. However, many might argue that government intervention is necessary in different fields (Pettinger, 2012). The appropriateness of government intervention will be evaluated by considering its implications on various factors such as social welfare and efficiency. This paper will start by describing the three types of economic systems then, section 2 will describe the different forms of government interventions in the market system. Section 3 will explain...
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...we can come to an understanding of what best fits the model of the United States. First, we will take a closer look at a central economy. This type of economy has its grounding in government rulings. At first description this sounds as though it would fit properly for the United States government as the government regulates taxes and tariffs on trade. However, in the case of a central economy system, the government makes all the economic decisions, preventing people (individuals or firms) from being able to affect the current market within the bounds of the system. This also has a very high chance to have a black market for many different good due to high government control. For example, if a certain good (milk) were to be set a low price, those who produce the milk may save some of it to sell to a black market for a better price on their good. Likewise, this control can be used in conjunction with knowledge of the average budget to fix prices so only people working for the highest power parts of the government can have excess capital to spend on goods. This further description does not properly fit how the United States is operated. A country that has this type of economy is North Korea. Next we look at a market based economy. In a market based economy, the free market decides the price for everything based on supply and demand. This also sounds quite like how the United States is operated. There is more to...
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...of production: the key difference between economic systems - the basic resources that a country’s businesses use to produce goods and services Factors: Labour: Human resources Capital: financial resources [money to start a business] Entrepreneurs: people who accept the opportunities and risks in creating business Natural Resources: physical resources Information Resources: market forecasts, economic data, specialized knowledge of employees [industry related publication] Types of economic systems: Command economy: government controls all or most factors of production and makes all or most production decision Two basics form: Communism: government owns and operates all sources of production [government was not suppose to stay in control, only temporary, but it did, end up being open business] Socialism: government owns only selected major industries [worker can choose their employer, public welfare, high taxes] Market economy: individuals control production and allocations decisions through supply and demand Market: mechanism for exchange between the buyers and sellers of particular good Two market relationships: Input market: firms buy resources from suppliers Output market: firms supply goods and services in response to demand Capitalism: political basis of market processes [market decides what, when and who we give it to, buyer and seller have freedom of choice, ownership is open to all] Mixed market economy: both command and market Privatization:...
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