Assignment 3: Supply, Demand, And Government In The Markets

Price gouging refers to the practice of raising the price of goods, services, or commodities to an unfair or unreasonable level. Price gouging is often the result of a sudden increase in demand and a shortage of the desired goods often in time of a pending natural disaster or other crisis. Price gouging is seen as an ethical issue as it takes advantage of others misfortunes and bad situations by raising the price for necessary goods and services to unjust levels; to prevent price gouging from occurring thirty-four states have passed laws against it and one faces criminal charges plus civil liabilities if it is discovered that they have engaged in the act . However, some economist and opposers of price gouging laws argue that if consumers are willing and able to pay the set price for a good or service than the business should not be held responsible.

However, both price gouging and price ceilings can have detrimental effects. When suppliers practice price gouging, they are taking advantage of people and overcharging them for the goods that they need. But implementing price ceilings to counteract price gouging can lead to a shortage of needed products and the creation of black markets that allow suppliers to sell their goods at illegal

However, when the equilibrium price is beyond the expectation of a fair market value, for reasons of political or social concerns governments will intervene in the market and establish limits on such things as wages, apartment rents, electricity, or agricultural commodities. Government uses price ceilings and price floors to keep prices below or above market equilibrium. (Stone, 2012, page 68)

b.) There will be a shortage created. Initially the public might be happy about the price ceiling, but soon after the sellers will begin to ration the graham crackers based on other factors since the one most willing to pay will no longer be a factor. Also, this might cause consumers to stand in long lines in order to be able to purchase the graham crackers, but since there are not enough graham crackers supplied, not everyone will be able to purchase the graham crackers. In the end, producers will move on to produce other products that are more profitable than graham crackers, worsening the shortage.

The facts of this case are that Congress has enacted the Emergency Bubblegum Price Control Act. Under it, the Price Administrator was given the authority to “establish such maximum price or prices that in his judgment will be generally fair and equitable and will effectuate the purposes of the act,” at any time when, in the Price Administrator’s judgment, bubblegum prices rise or threatened to rise to an extent or in a manner inconsistent with the purposes of the Act. The issue at hand is whether the Act articulates an “intelligible principle” sufficient to constitute a valid delegation of power.

The legal minimum and maximum prices for goods and services are implemented by governments, in an effort to be able to manage the economy by direct intervention. Price ceilings and price floors are two types of price controls. The legal maximum of price for a good or service is a price ceiling and the legal minimum price of good or service is the price floor. The government may impose both a price ceiling and a price floor but typically only selects one for a specific good or service. Prices are formed by a free market when there is a balance between supply and demand of the good or service. When the legal price is different than that of the market price it will create either an excess in supply or an excess in demand. When a price ceiling is imposed it will create shortages, while having no effect on the quantity supplied. Shortages of goods and services cause consumers to compete robustly over the restricted supply. The shortages arrive from suppliers limiting the supply of goods and services due to the price ceiling, not allowing them to make a profit. The opposite holds true with price floors. Having a price floor creates an excess of goods and services and that allows suppliers to be more agreeable to supply. When price ceilings or price floors are implemented, this can lead to the creation of black markets and inefficient allocation to

However, I don’t agree with the fact that the government place rules on a merchant product. In the article, Zwolinski brought up the point on what is a “reasonable” price, and how does that vary. The government can use the word “reasonable” to their own benefit. Zwolinski also share that price gouging is very unfair on businesses. Price gouging can perhaps cause a business to not make a large profit. However, is a large profit for a business more reasonable than someone losing their life due to price gouging? Does a large profit for a business account for how many store owners can take advantage of many in low income minimum wage workers and

In a free market economy, price fixing agreements face two large challenges to their effectiveness. The first is that while the companies participating in a price fixing agreement will benefit as a whole from adhering to the agreement, each individual company has a very strong incentive to cheat on the agreement and charge a market rate. Lowering prices allows the company to pick up additional market share from their competitors and increase profits for themselves above what they would be entitled to under the agreement. The second difficulty arises from the fact that without very high barriers to market entry, the higher prices being charged

In seeking to understand the Supreme Court’s judgement in Leegin, two questions immediately come to mind. Firstly, why would the manufacturer seek to establish a minimum retail price for its product? Secondly, what are the consequences for consumer welfare, if the manufacturer succeeds in maintaining a higher retail price?.

It implies that the monopolist will incur a loss. The loss is equivalent to the below shaded rectangle. Imposing of the price ceiling indicates that the monopolist will incur losses and will eventually exit the market in the long run (Lehdonvirta, & Castronova, 2015).

If the government puts in a price ceiling, then the quantity demanded will exceed the quantity supplied, meaning that not enough goods or services will be supplied to satisfy demand. This situation is called a shortage. Because price ceilings are installed in the interests of

d. In general, what happens to the level of consumer surplus as the price of a good falls?

Equilibrium is the price point where the quantity demanded equals the quantity supplied, causing the supply curve and demand curve to intersect (OpenStax, 2014). What happens when an equilibrium price for something deemed a necessity becomes too high or too low, that it becomes out of reach for people? When an item is truly a necessity for the well-being of its citizens, governments will step in and regulate the market with legislature to implement price controls, such as price ceilings and price floors. Governments use price ceilings to set a maximum price allowed or a price floor to set a minimum price for a given product/service (OpenStax, 2014). While a government may intend to protect its citizens through price controls, it can, in fact, have the opposite effect.

Perfectly competitive beef rancher in Montana price takers because most of the farms produces similar beef from other ranchers. All farmers beef is perfect substitute from all the other beef from the other farm. If there is not a substitute for the beef, then this would create a monopoly which is when one firm sells a good that has no close substitutes and a barrier block the entry of new firms. There is a perfect elastic demand for the beef in Montana. Which means that any farmer can impact the market rice of the beef. Ranchers can sell the beef at a market price but nothing much more than that since there is a average cost pricing rule intact. If the market set the price rancher must follow the given price.

| To show how demand for a good will change at specific price points, economists use a ____. Demand curve