The consequences of government imposing a price above or below the free market equilibrium Essay Example for Free

The consequences of establishment imposing a equipment casualty above or below the free foodstuff equalizer Essay1. Use a diagram to show the consequences of government imposing a wrong above or below the free grocery equilibrium. (10)When government imposes the free foodstuff and prohibits a worth from going above a certain level, we call it price ceiling. If the price ceiling is below the equilibrium price, then famines be created. The intention of price ceiling is to protect consumers from rapid price increases. However, this intention comes with consequences that are unintended. An example of price ceiling is the gasoline conciselyages in the 1970s. The diagram below go a manner show the consequences of price ceilingIn the first stage (before government imposing), the equilibrium price of cover per gallons is $1.20. This is where the progeny of quest equals to the beat of product sold. The graph of demand and supply when government imposes the price below the free market equilibrium is shown belowWe can see form the graph that the supply contracts from point A, the equilibrium, to point B, which represents the quantity of gallons if the price of oil was to be changed to $1. When supply contracts, it means that the quantity of oil that is supplied becomes less. Because of the shortage of oil, the demand will extend. The lack of supply of oil and the excess demand, scarcity will occur. plain though scarcity of oil existed before, shortages did non happen before the government imposed.Another outcome of price ceiling is the illegal scotch activities that may occur. Because the maximum price that the government pointed is less than the equilibrium price, producers would feel that they could earn more(prenominal) currency. With the shortage and the excess demand of oil, producers would then sell the products at a higher price illegally, and they would succeed in doing so because consumers would still need the oil that is so scarce in th e market.Because illegal economic activities would occur, the government would then need to hire inspectors. These inspectors would have to supervise the oil market. Hiring inspectors would cost the government more money therefore the government spending will increase. However, the producers of oil that are investigated would still find a way around the rules and regulations from the inspectors. For example, the producers would lie about their income as they have sold their product in the black market to make more money. This would petabit to tax evasion as well, because they would understate their own income.2. Evaluate the feign of either allow controls or a minimum wage. (15) look at control is an example of price ceiling. This is a law that prohibits landlords to raise the price of necessitate to go above the price that they have contumacious. This law is determined by state or country legislatures. In Mumbai, the rent control act started in 1947, with the intentions of de vising houses affordable to more great deal. In rent control, the government imposes the price below the free market equilibrium, devising the price lower than what it is supposed to be. Although the government intended well, the act proved that instead of benefitting the whole country, it loosely only benefit some of the poor and the mountain who already rented a home before the rent control.In the short run, rent control helped many people in obtaining places to live. This mostly helped the poor people who could not afford rents before. However, the effects of rent control have not fully happened in the short run. The procedure of people who look for housing may not be as high as it takes era to arrange housing. As market conditions change, it also takes a long time until the landlords could adjust the number of apartments they rent. As a result, rent control in the short run had quite a official impact.However, as time passes, the disadvantages of rent control outweighed the advantages. Even though the intentions of rent control were to protect the rights of the poor, rent control did the exact opposite. As rent control continues in Mumbai, the landlords started to discontinue their rent because they are get less money for their rents than the years before. Because the price of rents was below equilibrium price, landlords felt that they could earn much more with their rents. With the decreasing supply of rents in Mumbai, the number of demand increases. However, these demands could not be fulfilled with contracting supplies. As supply contracts and demand extends, the rent control act creates a shortage of rents. This would lead to homelessness, as people cannot find homes to live in.Although the rent control act denied access to the migrants, it protected the people that are already housed in Mumbai. Because of their safety in the rent, the people that are housed would refuse to leave, and it would cause immobility, meaning that companies outside w ould not be able to hire someone from Mumbai, even though they are very capable for the job. in that respect are also cases in which people give their houses to their children, their children give it to their children, and so on. This again, decreases the supply of rents. As time passes and the landlord wants to renew the houses, those people who have stayed in the houses would be paid to leave, thus becoming millionaires when they only had to remuneration $20 each month.The lack of supply of rents is also seen as the biggest reason for slums in Mumbai. As the number of rents occupied increase and the number of the rents available decrease, more people would not have a place to live, resulting to the slums in Mumbai. Not only does rent control affect the tenants, it also effects what the landlords do. Because the price of rents fall, the landlords would not earn as much money as they did before, when it has potential to earn much more money. As a result, the landlords would decrea se the quality of the houses. They could also charge the tenants for things that are supposed to be included in the rent expense, such as TV.In conclusion, rent control acts, particularly in Mumbai had more disadvantages than advantages. Even though it protects the rights of the poor by decreasing the price below the equilibrium, rent control only lead to a shortage of rent. The shortages would then cause slums to increase, as the demand extends but could not be fulfilled.________________ReferencesHouterman, Robin. The spherical Urbanist. Indias New Model Residential Tenancy Act A one-size Solution That Hardly fits All N.p., 05 June 2012. Web. 16 Sept. 2012. http//globalurbanist.com/2012/06/05/india-model-residential-tenancy-act.Lessons From Elsewhere Mumbai Rent Control. Cairobserver.com. N.p., 09 July 2012. Web. 16 Sept. 2012. http//cairobserver.com/post/26830679617/lessons-from-elsewhere-mumbai-rent-control.Lewis, Clara. Proposed Rental Law Gets Brickbats. The Times Of India. N. p., 1 June 2011. Web. 16 Sept. 2012. http//articles.timesofindia.indiatimes.com/2011-06-01/mumbai/29608341_1_landlords-maharashtra-rent-control-act-tenant-associations.Mahajan, Sulakshana. The Rent Control Act. Http//sdmahajan.tripod.com/. N.p., n.d. Web. 16 Sept. 2012. http//sdmahajan.tripod.com/slumming_mumbai.pdf.Principles of Economics. Google Books. N.p., n.d. Web. 16 Sept. 2012. http//books.google.com.sg/books?id=nZE_wPg4Wi0C.Thakur, Pooja. Mumbais Boom Turns Renters Into Millionaires.Www.businessweek.com. N.p., 05 July 2012. 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