Price Controls Like The Proposed Rent Control In Sanford

Price Controls Such As One Proposed On Rents In Sanford In 2023 See

Price controls, such as one proposed on rents in Sanford in 2023 (see attached article), are an effort to impose a social value (affordable housing) on owners of apartments and houses. They often do no work as intended as the Nobel Laureate Milton Friedman noted with his pithy statement of “Roofs or Ceilings:” Rent ceilings, therefore, cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction and indefinite continuance of rent ceilings, or subsidization of new construction and a future depression in residential building. Formal rationing by public authority would probably make matters still worse. If you could impose a price ceiling, name a good or service that you would like to see a ceiling (or floor) placed on and explain with a justification (do not use a good that another student has mentioned). Would there be any negative consequences? Draw a supply and demand curve (upload/attach a photo or drawing) illustrating the equilibrium price and where you would place your ceiling (or floor).

Paper For Above instruction

In considering the application of price controls, it is essential to examine not only the intended benefits but also the potential adverse effects on market efficiency and resource allocation. Historically, price ceilings—such as rent control measures—aim to make basic necessities affordable for lower-income populations. However, economics and empirical evidence suggest that such policies often lead to unintended negative consequences, including shortages, reduced quality of goods, and decreased overall supply.

Selection of a Good for Price Ceiling or Floor

For this analysis, I propose implementing a price floor on essential agricultural products—specifically, wheat. A price floor is a government-imposed minimum price that is set above the market equilibrium to assure farmers a fair income, especially in cases where they face volatile market prices or adverse conditions. The justification for a price floor on wheat lies in its importance in global food security, its cyclical price fluctuations, and the need to incentivize farmers to maintain production levels that meet societal demands.

Justification for a Price Floor on Wheat

Wheat is a staple food consumed worldwide, and its production levels are critical for ensuring food security. Farmers often experience income instability due to market fluctuations, droughts, and changing climate conditions. Implementing a price floor provides a safety net ensuring farmers can cover their costs and sustain agricultural activity. Without support, prices may fall below the cost of production, leading to decreased planting, potential farmer bankruptcy, and reduced future food supply. Therefore, a price floor aims to stabilize farmers’ income and encourage continued wheat cultivation.

Potential Negative Consequences

While a price floor on wheat might support farmers, it can also result in several adverse outcomes. First, it may cause surpluses, as the higher price incentivizes more production than demanded at that price level. The excess wheat could lead to government purchases, grain wastage, or storage costs. Second, consumers may face higher prices, reducing consumer welfare and possibly leading to decreased consumption of wheat or wheat-based products. Third, market distortions could discourage innovation and efficiency among producers, as they anticipate guaranteed prices regardless of market conditions.

Supply and Demand Diagram Illustration

The supply and demand diagram for wheat would show the equilibrium price where the quantity supplied equals the quantity demanded. To implement the price floor, I would place a horizontal line above the equilibrium price to represent the minimum price set by government regulation. This line would be situated above the intersection point of supply and demand curves, indicating a price at which the quantity supplied exceeds the quantity demanded, thus causing surplus. The exact placement would depend on the market data but conceptually remains above the natural equilibrium.

Conclusion

Price controls, whether ceilings or floors, serve specific social purposes but often create market inefficiencies and unintended economic distortions. The proposed price floor on wheat exemplifies a policy aimed at supporting farmers, but it comes with the risk of surplus production, higher consumer prices, and market inefficiencies. Policymakers must weigh these potential negative outcomes against the social objectives to determine the most balanced approach for managing essential goods in the economy.

References

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3. Krugman, P., & Wells, R. (2018). Economics. Worth Publishers.
4. Schmitz, J. A. (2014). Effects of Price Floors and Ceilings in Agricultural Markets. Journal of Agricultural Economics, 65(3), 693-714.
5. Tirole, J. (1988). The Theory of Industrial Organization. MIT Press.
6. Smith, A. (1776). The Wealth of Nations. Random House.
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8. Clapp, J. (2017). The Global Food Crisis and the Price of Wheat. Food Policy, 71, 89-97.
9. OECD. (2020). Agricultural Price Policies and Market Stability. OECD Publishing.
10. U.S. Department of Agriculture. (2021). Crop Production Annual Summary. USDA.