why do some consumers tend to favor price controls while others tend to oppose them? This is a topic that many people are looking for. khurak.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, khurak.net would like to introduce to you Price Controls, Subsidies, and the Risks of Good Intentions: Crash Course Economics #20. Following along are instructions in the video below:
“Welcome to crash course. Economics. Nmy. Name.
Is adriene hill jacob. And i m jacob jacob clifford. And today nwe. re going to talk about good intentions.
And how they go wrong price. Controls. Ncan. Derail markets and subsidies can distort them adriene and deadweight isn t just na.
Good. Description of your ex theme music jacob. Let s say. Craig becomes.
President nand. He caps the prices of all consumer goods. He argues that the lower price will help everyone n the poor. The middle class small businesses.
Everyone maybe a few people might fall for nthis policy. But not you you watch crash course economics. Which means nyou re funny and smart and attractive and you understand why this is a horrible idea nthis example seems far. Fetched but it actually happenednot the part of craig being president ninstead.
It was president richard nixon in the early 1970s. Nixon established a 90 nday price and wage freeze designed to fight inflation the general public supported the nidea. But economists were skeptical in fact milton friedman called the freeze one of nthose. Very plausible schemes with very pleasing commencements that have often nshameful and lamentable conclusions economists call.
This idea of the government nsetting prices price controls now there s two types and we re gonna look at both of nthem in the thought bubble adriene when the government sets a maximum nprice for a specific good or service. That s a price ceiling. Let s say the government nforced gas stations to charge a dollar per gallon for gas this might seem like a good nidea right mandated lower gas prices mean we all benefit not really society is actually nmade worse off when the gas prices fall consumers will want to buy more but producers will nno longer find it profitable to sell gas. The lower price will decrease the amount of ngasoline produced and we ve got a shortage.
A price floor is a law that sets a minimum nprice in a specific market. The idea is to help by keeping the price artificially high nand. Not allowing the price to fall down to equilibrium. Let s make up an example using ncorn assume.
The government set a price floor for a bushel of corn at 7. When the actual nequilibrium price is 4. The higher price would give farmers an incentive to produce nmore. But at that high price consumers would go buy substitutes things like wheat or nrice instead of cornflakes.
They d buy rice krispies. The point is the farmers wouldn t nnecessarily be better off they could sell corn at the higher price. But they wouldn t nhave as many customers in terms of actually. Helping consumers and nproducers.
The vast majority of economists consider price controls counter productive nbut. There is one notable exception minimum wage. The minimum wage is a really complex nissue that we re going to address in a future video. Jacob thanks.
Thought bubble. Let s look nat both these policies again using the supply and demand graph assume the equilibrium price. Nfor gas is 3 and the government sets a price ceiling here at only 1 at that low price nconsumers would want to buy more so. The quantity.
Demanded is gonna be here. The producers have nless incentive to produce gas. So they re going to make less. So.
The quantity. Supplied is nright here the end result is that the quantity bought and sold is going to fall resulting nin. A shortage. The amount of gas society.
Wants is where supply meets demand producing any nquantity. Less than that will result in something that economists call deadweight loss. So the nquantity produced at the price ceiling is not allocatively efficient. We re not producing nenough.
The lower the price ceiling. The more the deadweight loss and inefficiency keep nin mind that the price ceiling. Only has an effect on the market when it s below the equilibrium nprice adriene. Many countries still use price ceilings ntake venezuela in recent years they have been experiencing high inflation.
So the government ndecided to impose price controls on consumer products like basic foods medicine and toilet npaper. But the new price is so low relative to the cost of production that farmers and nfactories can t make money as a result. They ve reduced or halted production of many goods ncausing long lines shortages and empty shelves rent control is another type of price ceiling nmany cities including new york and san francisco put a cap on monthly rent for some apartments nagain. The idea is to increase affordability for tenants.
Which enables long term tenants nto stay in their homes. When real estate prices. Rise meanwhile. The lower rent discourages nrenovation and new construction reducing the quantity supplied the result is a shortage nof apartments with landlords that have few incentives to maintain their buildings or nbe responsive to their tenant s needs.
Economists are not at all split on rent control npretty much all of them think that price ceilings on rent reduce the quantity and quality of nthe housing that s available jacob now how about a price floor. Well. Nlook at corn with an equilibrium price of 4 per bushel and a price floor at. 7.
The nhigher price will give farmers an incentive to increase the quantity supplied. But consumers ndon t want to pay those higher prices. So the quantity. Demanded s gonna fall the result is na surplus and deadweight loss.
So society s worse off now one argument for a price floor on corn nis that if farmers can t get a high enough price they ll stop producing then we will nrun out of food and die. Economists except for malthus are not fans of starvation so nthey recognize that the government needs to get involved sometimes to preserve our food nsupply. But they don t use price floors. Let s talk about agricultural subsidies adriene.
A subsidy is a government payment ngiven to individuals or businesses. And they re often designed to offset costs to advance na specific public goal. Let s say. The government subsidizes farmers nthat produce strawberries this encourages them to increase supply and the result is nmore strawberries and a lower price at first glance.
This sounds like a great idea prices nfor consumers. Fall farmers get more money and the market remains at equilibrium. There nis no shortage or surplus proponents of farm subsidies. Say they can help provide a stable nliving to farmers limit food price inflation and make sure we grow enough food to feed neveryone.
But before you go out and become a lobbyist nfor farm subsidies keep in mind that economists don t like them for one many farmers. These ndays are not poor by some estimates. They make more than non farm families farmers neconomists argue have the income they need to handle price. Shocks.
Economists also think nthat subsidies might discourage farmers from innovating and rethinking how they farm because nthey have guaranteed income from the government a survey of economists found that 85 think the nunited states should eliminate agricultural subsidies. But what do economists have against farmers jacob economists don t have it in for anybody nexcept maybe physicists because they have unbreakable laws and perfectly controlled nexperiments man. I wish economics was a science. Economists.
Recognize that market prices are nset for a reason. If corn prices are down. Because demand has fallen then it s inefficient nand wasteful to spend money on subsidies. That said.
If there is a drought or other nnatural disaster. Affecting farmers. Then some sort of short term aid might be needed to nkeep farmers on their feet. But today farm subsidies in the us were not about giving a little money nto help ma and pa.
Make it through a tough season adriene in the us agricultural subsidies nhave been around since the great depression they were meant to help prop up farm prices nand farmers. The agricultural adjustment act of 1933 paid farmers not to grow crops on nsome of their land. The government also bought up excess crops for decades after farmers nof crops like corn wheat cotton and soybeans received government help in the late 1990s. Ncongress added new farm programs.
Including what are called direct payments. Basically nthe government handed out checks to farmers based on land ownership and historical production. Nlevels farmers got them regardless of the market price for crops or how much they produced according to the washington post in 2005 nalone. When pretax farm profits were at a near record 72 billion.
The federal government nhanded out more than 25 billion in aid that was almost 50 more than it paid to families non. Welfare the washington post also found the government gave over 13 billion dollars nto people that didn t farm at all in 2014. The government eliminated this system nof direct payment subsidies farm subsidies still cost the government 20 billion dollars na year. But a large portion goes to helping farmers pay for crop insurance.
But economists don t like this much. Either nsome argue that any form of government assistance. Distorts. The market resulting in unintended nconsequences for one it guarantees farmers.
An income and perhaps encourages them to ntake more risks like planting on less fertile land jacob. So is it ever appropriate for the government nto give a subsidy well let s look at the supply and demand graph again a market s ngoing to produce the equilibrium quantity and in most cases that is exactly the amount nsociety wants. But what if the amount society. Actually wants is much greater what if there nis something special about this product.
That buyers and sellers aren t factoring in nin. This case. The amount being produced is less than the amount society wants the result nwould be deadweight loss. The inefficiency caused by the underproduction of this product.
A subsidy nwould make society better off and improve efficiency adriene. Let s look at renewable energy. Technology. Nsome.
Economists like government subsidies for research and development in energy. They argue nthat things like solar panels would be underdeveloped and underproduced. Without government action nand that subsidies reduce deadweight loss. Other economists point out that businesses nalready have an incentive to innovate and that subsidies create false demand in essence nthey argue that there is no deadweight loss.
And even if there is markets will adjust nthe takeaway from this debate. Is that subsidies aren t inherently good or bad. It just depends non the values of society and markets in question just think because of nasa we have things like nscratch resistant lenses memory foam moonbase alpha jacob so we stand by our claim markets work nthey help us to determine the quantity. We should produce and help us to use our resources nefficiently.
Now government policies like price ceilings and floors. Often fail to make nall of us better off adriene sometimes markets fail. And that s nwhen. The government needs to step in thanks for watching we ll see you next week.
Jacob crash. Course economics was made with nhelp of all of these nice people you can support crash course at patreon. Where you ncan help keep crash course free for everyone. ” .
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