Monday, October 29, 2012

Price Ceilings

In my opinion, I don't think that the government should include price ceilings into our market economy because it is not very reliable or effective and overall it has too many consequences.
It is fine when the price ceiling is set above the market price because then nothing would be affected but when it is below, suppliers are forced to lower their charge on the product compared to the original market price. As a result, some suppliers are forced to drop out of the market because they can no longer make the profits they had before. When the prices drop, demand will rise which creates a shortage in the economy. This will create more problems if the government does not initiate relief programs so that supply can meet demand. Shortages can also create discrimination among consumers.
There are also some conception that with the drop in price, quality will drop as well which would not be good for the consumers. Also, when the demand is not met, consumers will have to turn to black markets in order to receive the product that they want.
Overall, implementing price ceilings into our system would be far too risky therefore it is better that we don't have one. The free market equilibrium price may also alter and change from time to time and it would too much of a hassle to have to change the price ceiling along with it.
America does not seem to benefit from the price ceiling system but which kind of economy or what country out there would benefit from having a price ceiling?

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