Friday, April 17, 2009

Why would government intervene in the market and place a price ceiling or price floor?

What does this mean: "Argue the attributes and the impediments to government mandated prices and provide a couple of examples. "


The pros and cons of price controls.

Good link attached, but basically governments try to do this because it is politically expidient, generally economically unwise.

Too many unintended side effects, often making the problem far worse than if the price controls were never put in place.

In a normal market the consequences are a dehorn...a logic justification of government intervention in market could be by the presence of high levels of positive externalities or negative externalities....

A specific range of price could imply positive

externalities to the society but must be accompanied by complementary measures...

Usually the governments does not intervene to take advantage of positive externalities or to alleviates negative externalites but in this cases, using price-ceiling and price-floor could be a good tool.

In practice, governments apply price-ceiling or price-floor like a response of politics demands coming from economics agents; it only can happen if the relevance of policy intervention is more powerfull than the relevance of market...in many places a market is a strong institution and would sound ilogic suggest price-ceiling or price-floor....

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