The paper "Government Intervention in the Market" is a wonderful example of an assignment on macro and microeconomics. When a market moves to equilibrium, the quantity demanded is equal to the quantity supplied. This equilibrium condition, therefore, does not sound well to both the buyers and sellers. In the real sense, buyers usually would like to be paying less if the market condition would allow them. They would therefore move forward to make a political case pushing for lower prices they should pay. A good example is about cars whereby the equilibrium between their supply and demand is beyond the reach of the common citizen, the government will be forced to impose limits to the car sellers (Adeyi et al 23). The other aspect is the market is the sellers.
They usually target the highest profit hence charging high prices. They, therefore, air their grievances demanding higher prices for their goods. The government is then compelled to set a maximum price that the sellers will earn their favorable profit. A good case is the one for labor markets whereby the equilibrium between the supply and demand for unskilled labor leads to a low wage rate.
These controls take the form of upper limit: price ceiling and lower limit: price floors (Adeyi et al 23). Using the case of the tomatoes business in a given market, the equilibrium price is usually set by the interaction of the quantity demanded in the market and the quantity supplied. Therefore applying the price ceiling by the government, that is the maximum price that should not be exceeded. This will lead to a shortage of tomatoes in the market, that is, lower supply and higher demand.
On the other hand, setting a price floor, the minimum price by the government will have an effect on both the demand and supply. The price floor is effective when it is set above the equilibrium price. This will lead to a surplus of tomatoes in the market; this is because the supply of tomatoes exceeds its demand. The advantages of price ceiling include preventing suppliers from involving in overpricing the limited goods in the market. It is also beneficial in maintaining an affordable cost of living even during times of inflation.
The disadvantages include discouraging suppliers to produce products because they are not able to set the prices that they anticipate in order to make a profit. They also reduce the availability of quality items (Adeyi et al 24). The disadvantages of price floors include higher prices on the side of consumers and oversupply and inefficiency.
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