Question

CRASH COURSE: PRICE CONTROLS, SUBSIDIES, ETC. Directions: Answer the following questions based on the video you just watched. 1. Explain why society would be worse off if govt. establishes a price ceiling on gasoline 2. What problems arise when govt. imposes a price floor on, say, corn? 3. Explain what happened in Venezuela 4. What problems occur when govt enforces rent controls?

Answer 1

1. If government establishes price ceiling below equilibrium price on gasoline, It cause a situation of excess demand in the economy i.e situation of shortage of supply of gasoline in the economy relative to its demand. This shortage would cause negative impact on society as there are lots of industry which are working by using gasoline and if they don't get it then they need to slow down their operations. This will cause decrease in GDP, Decrease in per capita income and employment.

2. If government establishes price flooring above equilibrium price on corn. , It cause a situation of excess suuply in the economy i.e situation of shortage of demand of corn in the economy relative to its supply. This will cause increase in unplanned inventory of producer i.e lots of output will remain unsold because for the same good consumer have to pay higher amount.