Question 1

When market participants are allowed through their interactions to find the price,there will be equilibrium where the quantity supplied by buyers equals the quantity supplied by sellers.If this is the case,why does the government intervene in certain markets by imposing a price floor? Why does the government intervene in certain markets by imposing a price ceiling? Which market participant (the buyer or the seller) will lobby the government to secure passage of a binding price floor? Which one will lobby for a binding price ceiling?

Accepted Answer

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Question 2

Why is raising the minimum wage generally ineffective?

Accepted Answer

The minimum wage is often set below the prevailing equilibrium wage, meaning that it does not affect the majority of workers in low-wage jobs. Additionally, even if the minimum wage is increased, employers may respond in ways that harm workers, such as reducing hours or laying off employees to maintain profits. Finally, many low-wage jobs are in industries that are highly competitive or where profit margins are thin, meaning that increasing the minimum wage may not be feasible for employers without passing on the costs to consumers.

Question 3

Why is it that price gouging laws (laws intended to place a temporary limit on the price that can be charged in a time of emergency) do not help those who are affected by the emergency which triggered the law?

Accepted Answer

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Question 4

Explain why a shortage occurs in a market where a binding price ceiling exists.Does a price ceiling improve the operation of the market?

Accepted Answer

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Question 5

In a 1973 paper entitled "A Living Wage," published in Annals of the American Academy of Political and Social Science (vol.409: 33-41),Daniel R.Fusfeld from the Department of Economics at the University of Michigan makes the following statement:
The only effective way to eliminate poverty in the United States is to pay all workers a living wage.As long as working people labor in jobs in which earnings are inadequate to meet even the poverty standards of income,their families will remain poor; furthermore,their poverty will be reproduced from one generation to the next.Our society will continue to suffer from all of the ills associated with poverty: disease,degradation,crime,hostility and anger (p.35).
This essay is a normative assessment of the living (or minimum) wage.In your short-answer essay,include the following elements:
a. What is the purpose of a living wage?
b. Compare and contrast the effects of a living-wage policy set in a labor market where the demand for workers is relatively price inelastic and one where it is relatively price elastic.Graph and explain your results.

Accepted Answer

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Question 6

Which of the following is true,holding all other things constant,when comparing regions that impose a higher minimum wage to regions that impose a lower minimum wage?

Accepted Answer

In economic terms, a price control becomes binding when it is set above the equilibrium price, causing a surplus or shortage. For minimum wage, if it is set above the market-clearing level (where supply meets demand), it becomes binding, leading to potential unemployment or labor surplus. Conversely, if the minimum wage is below the equilibrium, it's nonbinding, as the market wage is naturally higher. Thus, in regions with a higher minimum wage, the control is more likely to be binding, affecting employment and wages, while in regions with a lower minimum wage, the control is nonbinding, allowing market forces to dictate wages.

Question 7

How would an economist explain a teenager's continued unemployment where there exists a minimum wage?

Accepted Answer

The minimum wage law can lead to a situation where the quantity of labor (people willing to work) at that wage exceeds the quantity of labor demanded by employers. This can result in unemployment for some workers, including teenagers, as employers are not willing or able to hire everyone who is willing to work at the minimum wage.

Question 8

As a politician,you would be more inclined to propose an increase in the minimum wage when you believe that the new minimum wage would:

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Question 9

Discuss why any society would want a binding price floor law on a commodity such as corn.Who would benefit? Who would suffer? If it is the case that more suffering is caused by the presence of a price floor law,why does it remain in effect?

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Question 10

Why are the long-run consequences of a price control different from the short-run consequences of a price control? Be specific,and consider both price floors and price ceilings in your answer.

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Question 11

What is a black market? Under what conditions does such a market emerge? How do the prices charged on the black market compare to the conditions that exist in the legal market?

Accepted Answer

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Question 12

As a voter,why would or wouldn't you vote for a referendum calling for an increase in the minimum wage? What consequences would result from raising the minimum wage?

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Question 13

If a price ceiling or price floor existed where you lived,would you be willing to purchase products on the black market? What would you identify as a consequence to engaging in transactions on the black market over the short run and the long run?

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Question 14

Let's say that you are a politician who promises cheaper gasoline for everyone in the country if you are elected.Once you are elected,you make gas cheaper by imposing a price ceiling that is one full dollar less than the market's equilibrium price.What would be the reaction of the sellers of gasoline and of the public to your price ceiling law? Would you expect to be reelected in the long run?

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Question 15

Some states and localities have laws that make it illegal to resell event tickets at prices higher than the original,legal market price.What would be the positive and negative consequences to such a law?

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Quiz 4: Price Controls