1. How do price ceilings, price floors, deficiency payments and other artificial controls over price under mind the effectiveness of the price system?
2. Why doesn't the theory of competitive pricing provide a completely accurate picture of the real world economics?
2007-12-18 10:33:08 · 2 answers · asked by bunny 1 in Education & Reference ➔ Homework Help
1] Yes, they all mess up the operation of a free market and the pricing signals it sends to producers and consumers.
If the supply/demand equilibrium [while undisturbed] were greater than the price ceiling, the result will be a shortage of supply.
A price floor will cause oversupply. Deficiency payments will also cause oversupply.
2] Real world economies are not in a situation where there is perfect competition. There are many similar but distinct goods [eg, Fords and Chevys are similar but not the same], prices and wages are 'sticky' meaning they do not fluctuate readily with the market conditions, there are lots of emotional factors going into peoples' economic decisions, politicians are messing with the economy, bad tax policy distorts the market, etfc.
"Competitive pricing" means something different to an economist than to the general public. To the general public it means a low price. To an economist it means a market where all items are interchangeable, ie, fungible. There are few markets actually like this.
2007-12-18 10:50:12 · answer #1 · answered by redbeardthegiant 7 · 0⤊ 0⤋
This kind of thing will be in your text book. You want those answers, not the ones in my head.
2007-12-18 18:42:24 · answer #2 · answered by Debdeb 7 · 0⤊ 0⤋