Discuss why the government would implement a program to lower the price of a good and the welfare effects of such a program. Give an example of good for which such a policy has been implemented and explain the purpose of the policy.
What will be an ideal response?
Typically the government implements such policies to lower the price of a good because the market price is deemed too high and thus unfair. An example of such a policy is a rent control law in which a price ceiling is placed on rents. To be an effective policy, the price ceiling must be below the equilibrium price. The policy will reduce the quantity of the good produced and demand will exceed supply, creating a shortage of the good. A deadweight loss is created.
You might also like to view...
Refer to the figure above. Which of the following statements is true?
A) Ryan has a comparative advantage in the production of Good 1, whereas Tom has a comparative advantage in the production of Good 2. B) Ryan has a comparative advantage in the production of Good 2, whereas Tom has a comparative advantage in the production of Good 1. C) Ryan has a comparative advantage in the production of both the goods. D) Tom has a comparative advantage in the production of both the goods.
The IS curve is Y = 20 - 1.5r, and the aggregate demand curve is Y = 15.5 - 0.3?. When the interest rate is 7 percent, the inflation rate is ________ percent
A) 14.6 B) 9.5 C) 3.6 D) 20 E) none of the above
Given the data in Scenario 14.3, how much labor should the firm employ if labor costs $30 a unit?
A) 3 units of labor B) 4 units of labor C) 5 units of labor D) 6 units of labor E) 7 units of labor
Persistent U.S. deflation between 1879 and the mid-1890s was primarily due to the fact that the ___________ was growing faster than the _________
a. supply of money; demand for money b. demand for money; supply of money c. demand for money; demand for goods d. demand for goods; supply of money