3. Scenario 3: A major hurricane knocks out electricity in Greensboro for days a

Question

3. Scenario 3: A major hurricane knocks out electricity in Greensboro for days a. What would you expect to happen in the market for electrical generators (like these: b. Now, what would happen if local officials in the affected areas ordered that https://goo.gl/gsitgQ) in the Greensboro area? generators could not sell for a price higher than the pre-hurricane price? What is this called? Using this example, which is better, letting the market determine the price, or having the government determine the price? Why? Explain the tradeoffs involved. c.

Explanation / Answer

Ans

1 Demand for generators will rise because people need them to power houses and business

2 There will be shortage of generators as demand exceeds price. This is called price ceiling

3 letting the market..... Is better becsuse in this way there is no shortage Only those will demand who will like to purchase at high price. price floor protects consumers but there is hoarding and shortfall of generators. Even black marketing occurs. But if prices are determined by market consumers will have to pay higher price. This is a form of exploitation

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