Economics Question?

Question

Hi

I have another Economics question that I need some help with:

Think of two things that are provided 'free'. (Goods that are provided for free by businesses or government.) In each case, identify when and in what form a shortage might occur. In what ways are/could these shortages be dealt with? Are your suggestions the best solutions to the shortages? Explain.

Answer 1

In Army they used to provide free uniform, clothes, blanket etc and that could get exchanged any number to time i.e you submit old one and get new one. Then slowly what happened, people started getting old one from outside and getting exchanged or they started giving to their relative and keep getting exchanged. This caused severe shortage in Army. Ultimately Army has to restricted this one and defined a term of life so that they can get new thing only after that particular time.

Another one:
Bank provides there employee exchange of notes to new notes of their choice of denominations or to coins.
Since this is in shortage in outside slowly bank employees started making profit out of this and this resulted in shortage so that has to be restricted.

To summarize, anything provided free without restrication to a limited group results in people taking advantage of this resulting in shortage. Solutions to shortage is to restrict it to genuine need quantity or providing incentives for not misusing it or restricted usage.

Answer 2

Shortages occur when price controls are imposed by the government.

In other words, the government attempts to "fix" the price of a good below the market price. Shortages are always the result.

Prices are an important market signal. They provide information to producers and consumers. They are not at all meant to be fixed.

When the price of something rises, it indicates to producers "Invest here! Increase the supply here! This is where the demand is."

High prices are also an indicator to consumers. They tell consumers, "Conserve! Supplies are dwindling."

Low prices indicate the opposite. Low prices tell producers, "Invest elsewhere. Supplies are plentiful. Consumers in this area are well taken care of."

Low prices tell consumers, "Buy as much as you wish. Supplies are plentiful."

Fixing prices below market levels throws everything out of whack. Prices are not able to convey their valuable information when they are fixed.

Let's say that gas prices are at $5 per gallon. In an effort to "do something," the government fixes the price of gas at $2 per gallon. Shortages, and long lines at the gas station are the inevitable result. But why?

In order to answer that, we'll use another example, one that we can all relate to:

Let's say the market price of a bag of potatoes is $4 a bag. One day, you notice an advertisement that says, "For 1 day only, a bag of potatoes will be $1 per bag."

What happens when you get to the supermarket? Answer: The shelves are empty. People bought them all up. You end up with nothing.

If the market price of gas is $5 per gallon and the government fixes it at $2, shortages are the result. The price is artificial.

As stated earlier, low prices tell consumers "Buy as much as you wish. Supplies are plentiful."

But supplies are NOT plentiful. The price control imposes an artificial price.

Consumers, however, look at the price, and buy it up. Instead of conserving, which is what they would have done had the price remained at $5, they fill up their tanks as much as possible.

Whenever you hear of widespread shortages, look deeper. You'll always find a marketplace hampered by government price controls.

Answer 3

Car dealerships, banks and offices usually provide free coffee. If they left the coffee pot out in the lobby, people would be able to walk off the street, get coffee, and walk out. And they would be out of coffee all the time, and over time would lose the incentive to fix more coffee, causing a shortage.

But to prevent that shortage, they place the coffee deep within the office, or offer it to customers who seem to be likely customers. That way, a shortage is limited.

But picky folks would say that the coffee, although it costs no money to the consumer, isn't "free". It costs the consumer time in the office or sales showroom, and increases the odds of a sale.

Answer 4

Do you particularly understand provide side economics? that is not purely about reducing taxes on company vendors; it makes a speciality of both rules that help strengthen capital for brand spanking new and increasing businesses and on the prices of production. The "generic expertise" isn't continually astonishing. so that you ought to particularly authorities visit all the hardship and cost and administrative value to tax a company and then spend funds with businesses particularly of purely letting businesses shop their own definitely-earned funds to commence with? that would not make a lot experience, both.