Read Eye on Price Regulation on p. 185 and explain why a mismatch between intention and outcome is inevitable if a price regulation seeks to block the laws of supply and demand
What will be an ideal response?
Price regulations have as their purpose the goal of changing the market outcome. For example, minimum wage laws raise the wage rate paid lower-skilled workers and rent controls lower the rent paid for apartments. In both instances, the law is designed to change the equili-brium price (the wage for the minimum wage and the rent for rent controls) determined by supply and demand. Because the equilibrium price is the only price at which there is neither a shortage nor a surplus, a law that changes the price automatically creates either a shortage or a surplus. In the Eye on Price Regulation, the cap on executive pay would create a shortage of executives.
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Farmer Jones bought his farm for $75,000 in 1975. Today the farm is worth $500,000, and the interest rate is 10 percent
ABC Corporation has offered to buy the farm today for $500,000 and XYZ Corporation has offered to buy the farm for $530,000 one year from now. Farmer Jones could earn net profit of $15,000 (over and above all of his expenses) if he farms the land this year. What should he do? A) Sell to ABC Corporation. B) Farm the land for another year and sell to XYZ Corporation. C) Accept either offer as they are equivalent. D) Reject both offers.
Refer to the above payoff matrix (in years of sentence) for two people (Bo and Max) charged for robbery. Which of the following is the outcome of the dominant strategy without cooperation?
A) Both Bo and Max confess. B) Both Bo and Max do not confess. C) Bo confesses while Max does not confess. D) Bo does not confess while Max confesses.
Regulators often adopt policies that benefit
A) consumers and injure producers. B) the firms regulated rather than consumers. C) only the government. D) no one.
Under perfect competition, which of the following are the same (equal) at all levels of output?
a. Price and marginal cost b. Price and marginal revenue c. All of the answers are correct. d. Marginal cost and marginal revenue