Question

Discuss price ceilings and price floors. The government sometimes imposes price controls on certain goods and services at certain times. However, there are usually unintended consequences. Discuss one or more price control imposed by the government and the unintended consequences of the price control. Why might people ignore the unintended consequences and still impose a price control.

Answer 1

Answer :- Sometimes government implement price control to set minimum Or maximum price for specific goods and services to control economic activities by firm through direct government intervention. It can be of two types (1) price ceiling (2) price floor.

(1) price ceiling is the maximum price set by government for certain goods and services inorder to prevent black marketing. In order to protect consumer to pay higher prices for goods / commodities.

(2) price floor is the legal minimum price for goods and services . Government impose or limit price that how low can be price for goods and services that can be charged to consumers. Inorder to be effective price floor should be higher than equilibrium price.

*Rent control is example of price ceiling such as in new York City price ceiling was imposed to provide affordable housing for low income earners. In short run there will availability of apartments but in long run rent control will decrease the availability of apartment because suppliers of apartment can't charge profitable rent . Hence they will stop constructing new buildings.

* Minimum wages :- this is example of price floor. Employers have to pay minimum wages to every employee working under him/ her. It was imposed during great depression in 1938 under fair labour standards act . Minimum wages in United States is $ 7.25 an hour (24 July, 2009) . Countries such as France and Britain have much higer minimum wages for employees working in a company or factories.

Minimum wages benefits many employees enjoying much higher wages than earlier but it also cause unemployment. Mostly younger people and minorities are affected by it in a occupation.

People ignore unintended consequences and still impose price control for their temporary benefits caused by price control and might cause problem in long run.