4.2 Government Regulation of Econ

Why gov. regulates

Public Safety and Well-Being, Protection of Industry, Revenue Collection, Prevent Business Cycle Extremes

minimum wage

businesses are forced to pay workers at least that amount.

public health

ensure the health of its citizens because healthy citizens create a productive workforce

Subsidies

financial assistance payments for agriculture; subsidies influence the price and quantity of those goods that make it to market and protect farmers in the event of loss from events beyond their control, like weather.

Price Controls

gov,. intervention in which legal restrictions placed on prices charged; when the government sets a product's price above the equilibrium price and consumers must pay a minimum price for a good or service.

regulatory laws

laws set by gov. that control aspects of how a firm conducts business

minimum price "price floor"

price set above the equilibrium price. Note that at the minimum price, the quantity demanded is significantly less than the quantity supplied. For that reason, additional intervention to help producers deal with a surplus may be required.

maximum price "price ceiling"

price set below the equilibrium price. Note that at the maximum price, the quantity demanded is significantly more than the quantity supplied. For that reason, additional intervention to help producers deal with a shortage may be required.

natural monopolies

product produced most efficiently when there is one supplier; Products with a natural monopoly market are more likely to be regulated to ensure a fair price.

Goals of Government regulation

unemployment, price stability, and economic growth.

Surplus

When the price is set above the equilibrium price for a good or service, the quantity supplied will exceed the quantity demanded at that price. This will result in a surplus of goods or services.

Shortage

When the price is set below the equilibrium price for a good or service, the quantity demanded will exceed the quantity supplied at that price. This will result in a shortage of goods or services.