Grantham ECN206 2023 January Week 2 Discussion Latest

ECN206 Macroeconomics

Week 2 Discussion

Market Equilibrium and Price Controls

Each week, you will be asked to respond to the prompt or prompts in the discussion forum. Your initial post should be 75-150 words in length, and is due on Sunday. By Tuesday, you should respond to two additional posts from your peers.

Markets seek equilibrium, and the demand for goods and services will come to an equilibrium with supply of goods and services.  When markets are not in equilibrium, surpluses and shortages, as well as underground markets, can exist.  Sometimes, the government may want to intervene in markets to try to help reduce economic hardships.        

What is the difference between a price floor and price ceiling?  According to the laws of demand and supply and how market equilibrium, efficiency, and equity are reached, do attempts to repeal those laws and market results with price floors and price ceilings justify legislative bodies to implement price controls?

Review the mechanics of supply and demand.  Disequilibrium between supply and demand will occur if price is above (surpluses) or below (shortages).  Why does a price floor lead to surpluses?  Why does a price ceiling lead to shortages?  Review consumer and producer surplus.  A price floor will lead to a transfer of consumer surplus to producer surplus; a price ceiling will lead to a transfer of producer surplus to consumer surplus; both price regulations lead to deadweight losses, which is a loss of surplus to society.  Why?