Economics module 8 and 9
7. Who benefits and who loses from quantity controls, and why are they used despite their well-known problems?
It depends on the scenario. If the government puts a quantity control on taxi cabs in a very populated area then neither the taxi drivers nor the consumers benefit because there are a limited amount of taxi cabs. The taxi drivers that have a license would be at an advantage because they would have work guaranteed but the taxi drivers that don't have the license are a disadvantage because they don't have a job and since the licenses are limited, they can't change that. Quantity controls are used despite their well-known problems because they can be beneficial. For example, if there were an endangered species that is regularly hunted then quantity control would help take that species off the endangered list because it would limit the amount of people who are allowed to hunt the species.
2. What problems do price controls create and how do they make a market inefficient?
Price controls are good for short-term but when they're implemented long-term, they tend to cause problems. Long-term price controls will lead to shortages, rationing, deterioration of product quality, and black markets that arise to supply the price-controlled goods through unofficial channels. Price controls can make markets inefficient in that they will prevent a market from adjusting to its equilibrium price and quantity, and thus will create an inefficient outcome.
1. Explain the meaning of price controls and why government sometimes intervenes in markets.
Price controls are restrictions put in place and enforced by the governments on prices that can be charged for both goods and services in a market. They're legal minimum or maximum prices set for specific goods. They're usually put in place as a means of direct economic intervention to manage affordability of certain goods. Governments sometimes intervene in markets to make products more affordable. The main reason why the government would intervene is to correct market failures or to achieve more equitable distribution of income and wealth.
5. Explain the meaning of quantity controls and how the government intervenes in markets using quantity controls.
Quantity controls are a limit of products made available that are set by the government. The government regulates the quantity of a good that can be bought and sold rather than regulating the price. The government intervenes in markets using quantity controls by limiting the amount of product that can be sold. In a sense, they control the product.
6. What problems are caused by quantity controls and how do they make markets inefficient?
Quantity controls drive a wedge between the demand price and the supply price of a good. The price paid by the buyers ends up being higher than that received by sellers. Quantity controls prevent mutually beneficial transactions from occurring, which would have benefited both the buyers and sellers. It makes the markets inefficient because it creates deadweight loss, which refers to the lost gains from missed opportunities.
4. Who benefits and who loses from price controls, and why are they used despite their well-known problems.
The person who benefits and the person who loses from price controls depends on the price control imposed. If we're talking about price ceilings and the price goes below the market equilibrium then both the seller and the buyers are at a disadvantage because sellers are less willingly to sell and the resources go to the wrong people. What that means is that those who are in need will be less likely to get the product than other people who are not in need. If the price ceiling is placed above the market equilibrium then the seller is the on who benefits.
3. Why are economists often deeply skeptical of attempts to intervene in markets?
The reason economists are often deeply skeptical of attempts to intervene in markets is because price controls can have adverse effects like the ones I listed in response two. Price controls distort the allocation of resources.
