Question

Price controls (price floors and price ceilings) are a commonly used tool on behalf of governments to intervene in the way markets are operating.

Discuss whether price controls are an effective way to intervene to the market.

How is the use of price controls distorting the operation of markets?

Provide examples of countries that have used price controls to affect the way various markets operated.

Analyze both price floors and price ceilings.

Answer 1

Answer : Goverement should intervine through price control in the market regulation through regulations, taxation and subsidies . As price control has been used in regulation so that the consumer as well as producer both has been benefit from an upcoming working of the business profile.

Price flooring means that government imposed a price that has been more than equilibrium price.It means that price floor has been used in labor wage market in an effective and logical manner.Price flooring is a cap of pricing that the government has been imposed so that no down pricing has come into an effect.

Price ceiling means that lower the price below equilibrium price .As price has been not certain increased and control over price so consumer has been not suffered.

Answer : Price control has been distorted in the market. As when there is a free market and price are not controlled than it has been resulting in an equilibrium quantity but price control provides restrictions which resulted in a surplus or shortage. The intervention of the government has been restricted the quantity as a result inequality in an economic rises.

Answer : Price control has been used by various developing countries in order to control the price of the product. As labour wage market minimum wages concept has been used by many countries such as India, Brazil etc.

As rent seeking or rent control has been used so that tenant has been not charged higher price from certain individual.

Price control I.e rent seeking has been implemented in 2005 in New York.