Economics Question?

Question

What if we imposed a price ceiling so that gasoline prices were "capped" (at $1.50 a gallon for instance) or "textbooks" prices were limited to, let's say, no more than $50 each? So, now say who would benefit by these price ceilings and who would be harmed? Is it possible for the intended beneficiaries of such price ceilings (those who expected to benefit from price limits) to wind-up being harmed (the intended outcome is not achieved).

Answer 1

econgal is closer in what you want. If I am told as a producer I can only sell my 'wangdoodles' for a 1.50, I have NO incentive to produce more. When the ceilings lifted you will have a HUGE shortage because I had not incentive to produce. Nixon and the gasoline cap, caused even greater harm and prolonged the agony of the gas shortage in the 70's.

Answer 2

If we had price caps than everyone everywhere would have the same top dollar prices so there would no longer be that whole "lets shop around for the best price" ideas because everything would be the same.

It could work in theory but i dont think it would last in the real world. The people who create the product that hast eh capped price, what if there book lets say is leagues ahead of another...but they are the same price? Well the company with the beefier book wont try as hard next time. I could actually see product quality go down this way.

It's just like if say gas station all banned togehter and agreed not to go under 1.50 lets say. granted this is on the other end of the spectrum and they would be raising prices but either way we're screwed.

It is a really good idea but i dont think it could work in the real world, to many competitiors, to many buyers, to many old politicians etc.

Answer 3

I don't see any benefit to market intervention such as this. Price floors and price ceilings cause market imbalances since equilibrium is never achieved. I see a shortage showing up here and nobody will win in the end, When ever a shortage is induced, the ones who get around it are the folks who "know somebody", in the end the average consumer is the sucker.

Answer 4

beneficiaries would be all of those who have to buy gas or textbooks as price caps are intendend to limit the price increases once it has been noted that they are rising too much. those harmed would be of course the sellers/producers. the inflation in the gas price could be motivated by an exogenous factor, ie war fears in iran, that rises costs for gas retailers. if the price cap is way too close to the cost of importing the gas, then the retailer wont have much of an incentive to sell it anymore.