Question

Use material covered in class to argue in favor or against a government enforced price ceiling for surgical masks during a pandemic. This essay won't grade won’t depend on which side of the argument you take -- in favor or against a price ceiling -- rather, the essay will be graded on your economic justification.

Answer 1

The Corona Virus Pandemic has caused a lot of concern among the government which believes that the only way to counter it is through sanitization and maintaining social distancing. One such probable solution is to make wearing surgical masks mandatory for people which will allow lesser spreading of the disease.

Price ceilings are a way in which the government sets in the maximum price which a producer can charge in the market thereby creating a dead weight loss which is the loss of profit for a firm. An equilibrium price is one in which the demand and supply curves meet. But government expects that the price of surgical masks will shoot up as the demand goes up for them.

To make sure that the social costs of buying surgical masks can be contained during this time period, the move is correct in the sense that it reduces the price of the commodity, thereby making it easier for all sections of the society to be able to purchase the same.

A dead weight loss takes place, when producers are mandated to sell a product bellow its equilibrium price. Even though it creates in equilibrium in the market place, yet its positive effect is so large that it is allowed. In the current scenario if surgical masks are provided at a cheaper rate, then the total number of infections can go down drastically, thus allowing this will have a positive effect on the society and should be encouraged.

The New Equilibrium and a supply and demand graph explaining this phenomenon is as follows.

Explanation of the Graph: -

Here in the graph we see a typical demand and supply schedule. The Demand Graph is downward sloping. It indicates that as the price begins falling, the demand for goods increases. Also, we have the supply graph, wherein with a rise in price of the good, the quantity supplied increases. This is as consumers try to maximize their satisfaction while producers ensure that they can extend their profits.

The market price here, for surgical masks is 10$ wherein the total quantity supplied and demanded is 200 Thousand Units. The government then kicks in a price ceiling at 5$ wherein the total quantity is 300 thousand. The dead weight loss has been indicated as it is the loss which producers face as a result of the price ceiling.

The new equilibrium is at a lower point than the initial equilibrium as depicted in the graph.

Please feel free to ask your doubts in the comments section.