Econ 4.3
According to a news story, in early 2019, sales of beef and pork in Venezuela had declined by 60 percent since 2012, and sales of chicken had declined by 74 percent. The government had imposed price ceilings on beef, pork, and chicken. Source: Juan Forer, "Hyperinflation Shatters Venezuelan Manufacturing," Wall Street Journal, March 5, 2019. With prices kept low by price controls, shouldn't consumers in Venezuela have been buying morebeef, pork, and chicken, (meat) not less?
A price ceiling set below the equilibrium price will cause consumers to increase their quantitydemanded, but the quantity of meat farmers supply decreases. Consumers can only buy the quantity of meat farmers offer for sale, so the quantity of meat they consume declines.
University towns are not the only places that face peak and non-peak "seasons." Which of the following locations may also face a large increase in demand for hotel rooms during particular times of the year?
Beach destinations, Snow-skiing resorts, and National parks
Can economic analysis provide a final answer to the question of wether the government should intervene in markets by imposing price ceilings and price floors? Why or Why Not?
Economic analysis cannot provide such an answer because it seeks to address positive questions such as "what is."
In late 2018, malnutrition was widespread in Venezuela. Writing in an opinion column in the New York Times, Javier Corrales argued, "The government is making the crisis worse by...imposing more pricecontrols." Source: Javier Corrales, "The Venezuelan Crisis Is Part of Maduro's Plan," New York Times, September25, 2018. Shouldn't price controls help reduce malnutrition by lowering the price of food so more people can afford it?
No. Imposing a price control below the equilibrium price in a market causes the quantity of the good available to consumers to fall because sellers will supply a smaller quantity, thereby causing some consumers to go without food that they would have been able to buy in the absence of the price control.
Ekaterina Jardim, Jacob Vigdor, and colleagues at the University of Washington concluded that when Seattle raised its minimum wage, the effect was to lower "the amount paid to workers in low-wage jobs by an average of $74 per month per job in 2016." Source: Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething, "Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence fromSeattle," National Bureau of Economic Research Working Paper 23532, revised May 2018. a. Shouldn't an increase in the minimum wage raise, rather than lower, the amount paid to low-wage workers?
No. The decrease in the quantity of hours worked as a result of the wage increase had to have been relatively large to reduce the total amount workers in low-wage jobs received.
Does this result mean that no low-wage workers in Seattle benefited from the increase in the minimum wage?
No. Workers who continued to work the same or slightly fewer hours than they worked before the increase in the minimum wage are better off because their total income increased.
Which of the following statements regarding normative/positive analysis of the minimum wage istrue?
Positive analysis, as represented by the results of this study, contribute to the debate on economic policy but in many cases, such as the minimum wage, it cannot resolve the debate. The result of this study reinforces the trade-off involved with the minimum wage: Some workers gain, while other workers lose. Supporters of increasing the minimum wage may consider its trade-off to be acceptable, while opponents of increasing the minimum wage may consider its trade-off to be a bad one. D. ALL OF THE ABOVE ARE TRUE
Why do some consumers tend to favor price controls while others tend to oppose them?
Price ceilings generate shortages. Consequently, the consumers who obtain the product at a lower price win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.
Briefly explain whether you agree or disagree with the following statement: "If there is a shortage of a good, it must be scarce, but there is not a shortage of every scarcegood."
The statement is correct because every good (except undesirable things) is scarce.
Someone who will be moving to Lowell next year and who intends to rent an apartment
Will be worse off if they are able to find an apartment to rent because rent is lower due to the price ceiling & will be worse off if they are unable to find an apartment to rent. (ANSWER: E- both A&B
A black market is:
a market in which buying and selling occurs at prices that violate govt price regulations.
Over time, the city council's law may cause the supply of hotel rooms to_____
decrease
A price ceiling
does not increase the amount of the product that consumers buy because it creates a shortage.
Black markets may arise
in reaction to binding price ceilings
We do not typically see laws limiting the prices hotels can charge during peak seasons since those prices
merely offset low prices and very high vacancy rates experienced during the off season.
Do producers tend to favor price floors or price ceilings? Why? Producers favor
price floors because, when biding, price floors increase price above the equilibrium and may increase producer surplus.
Cities like San Francisco and New York that require a driver to buy a city-issued taxi medallion before the driver can legally operate a taxi are shifting the supply curve for taxis to the left relative to where it would be without the requirement for a medallion. a. Briefly explain why the supply curve for taxi rides shifts to the left. What is the effect on the market price of taxi rides from the medallion requirement? The supply curve for taxi rides shifts to the left because
the quantity of taxis available is lower because the city issues only a limited number of medallions. The equilibrium price for taxi rides will increase.
According to a news report, in 2008, medallions in San Francisco were selling for $250,000. In late2018, "the market for taxi medallions in San Francisco is now totally frozen. No one has bought or sold one in over two years." Source: Sam Harnett, "Cities Made Millions Selling Taxi Medallions, Now Drivers Are Paying the Price," npr.org, October 15, 2018. Why would taxi medallions have been worth $250,000 in 2008? Why was it apparently impossible to sell them at any price in 2018? In 2008,
the taxi business was very profitable in San Francisco, and given the small supply of the medallions, the equilibrium price skyrocketed. By 2018, the increased popularity of rideshare companies like Uber and Lyft made it possible for individuals to provide taxi service without purchasing a medallion.
A columnist writing for crainsnewyork.com observes that "the central conclusion of the vast majority of economic work on the subject is that rent regulation leads to a deterioration of housing stock." Source: Greg David, "How Rent-regulation Changes Will Hurt Housing Stock," crainsnewyork.com, April 12, 2019. What does the columnist mean by "deterioration of the housing stock"? Why might rent control lead to a deterioration of the housing stock? The "deterioration of the housing stock" means that
what the apartments' landlords offer for rent will become rundown and in need of repairs. Rent control reduces the frequency of turnover at a particular property, thereby reducing thelandlord's incentive to properly maintain that property.
A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments
will be better off if he does not get caught because that amount will be above the equilibrium & will be worse off if he gets caught (ANSWER: E- both A & B)
The competitive equilibrium rent in the city of Lowell is currently $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off. Someone currently renting an apartment in Lowell
will be better off if they keep their apartment because rent is lower due to the price ceiling, will be worse off if they lose their apartment. (answer E: both A&B)
A landlord who intends to abide by the rent control law
will be worse off because he will be receiving less rent
