Sometimes the government intervenes in the market system by setting prices on ce

Question

Sometimes the government intervenes in the market system by setting prices on certain products-goods or services-below or above the market(equilibrium) prices. Such prices are either ‘price ceilings’ or ‘price floors’.Please note the definitions of these concepts. Refer to the example of rent control ( on apartment buildings) used in the textbook. If such rent controls were implemented in River Falls(or your own home town), who would benefit and who might be ‘harmed’(affected negatively) by such government intervention in the housing market? .

Would you support a cap(price ceiling) on college tuition? Why or why not? Is your group in agreement on this ?

In your opinion, using the example of minimum wages, is price- setting by the government justifiable or desirable in our economy?

Explanation / Answer

If rent controls were implemented in River falls(or your own hometown), then the owners of the home would be hurt and the rentiers would benefit by such intervention.

I would support a cap on college tuition as this will make education accessible to everyone and prevent the providers of education from the unnecessary rent-seeking activity. As education is a commodity with positive externality, government control on education is necessary.

In the case of minimum wage, the government sets a wage below which the employers cannot pay the employees. This is justifiable by the government as it prevents the workers from exploitation. Specially in labour surplus economies, the equilibrium wages can be very low which will lead the workers to work for a very low payment. To prevent such situations, the minimum wage is employed from the workers perspective. In such situations however the employers might be hurt as a result of which many businesses might not be sustainable which will again have a negative effect on the workers.

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