Can you help me

Vaughan

Price Ceiling

Tidewater Community College

Laquinda Vaughan

11/13/2022

Introduction

Government and regulatory bodies are keen in ensuring the products and services circulated in the economy are priced appropriately. This is attained through the use of a price ceiling, which involves setting a maximum price at which products should be charged. In this discussion, the viability of the price ceiling is explored by determining the benefits and drawbacks as well as the possible strategies of enforcing price ceiling without harming the economy. Thesis statement: Even though some disagree,the use of a price ceiling is crucial in the economy as it controls inflation and limits costs for the consumers.

Supporting argument

Inflation can be reinforced with the use of a price ceiling as it allows monetary authorities to legally cap price increases at a fixed rate. In theory, this will prevent inflation from exceeding its set level and ultimately, will aid in avoiding the rise of interest rates. If enterprises have monopoly power and price increases are being driven by higher profit margins, a price ceiling can prevent further price increases without generating a shortage of the commodity. If supply is inelastic and prices are rising, then supply should not be affected by price regulations. For instance, a constant demand for housing with a limited supply has affected rent control, but has caused the housing market to remain the same. More specifically, “ …

. Inflation has been utilised as a tool for monetary policy regulation and is rooted within historical legislation. According to Cochoy “It was the job of the United States' Office of Price Administration (OPA) to limit prices and thereby manage inflation from 1941 and 1947. Inflation was lowered during this time period compared to the First World War, thanks in part to price restrictions. Additionally, the Nixon administration and the Korean War both instituted price controls (Cochoy et al 135).Through textual support, the effectiveness of price ceiling in it’s function of controlling inflation has been demonstrated by Cochoy. I

Next, a price ceiling has been essential in preventing consumer exploitation.

. is only temporary, price caps can help people cope with the effects of inflation while they wait for supplies to return to normal. Demand and spending can be boosted by setting a ceiling on prices. That's why price caps can help in the near run. They are not a problem in and of themselves, but they can become one if they last too long or are set too low relative to the price at which the market finds equilibrium (when the quantity demanded equals the quantity supplied). When this happens, supply may be in low supply due to the high demand. Something will also have to go if the prices producers are allowed to charge are too far from their production costs and operating expenses. As a result, they could have to skimp elsewhere, lower standards, or raise prices (Bar-Nahum et al 2200). It is possible they will have to pull products or reduce output, causing more shortages. The inability to make a decent profit has resulted in the shut down of businesses. This is resulted by price ceiling which limits the ability of business to push prices higher based on the incurred cost of production in compensating for profits.

Counter argument

The incentive for businesses to boost production might be dampened by price limits. For instance, if there are shortages in the supply chain that are driving up prices. Companies will have an incentive to boost production as a result of the price increase. But if the government institutes price limits, the incentive to increase supply will be diminished. Therefore, pricing regulations can prolong the scarcity rather than alleviate it. Although there is high probability of producers and suppliers shying away from the market, this problem can be addressed by ensuring the price ceiling is adjusted regularly to reflect inflationary changes in the economy (Zhang). These adjustments ensure producers and suppliers do not incur losses when the economy gets into recession.

Another source of critic against price ceiling is the rise of the black market is another issue with price regulations. The temptation to buy at an artificially low price and resell on the black market for a higher price to those who cannot wait in line increases when demand is artificially suppressed. This can be countered by putting in place restrictions to ensure fair competition in the market. This is attained through ensuring there is quality in products offered at the market as a way of motivating consumers into opting for the right market rather than going for the black market (Ye).

A price ceiling plays a major role in a regulated economy as it prevents consumers from unfair business practices and exploitation. It is a strategy that can be applied in regulating inflation in the economy. However, a price ceiling must be approached with caution as it has a potential to discourage the production of suppliers in the market. It can also encourage the development of black market which in turn stagnates growth in the economy. With effective protocols, a price ceiling has produced efficiency in the economy.

Work Cited

Bar-Nahum, Ziv, Israel Finkelshtain, and Iddo Kan. On the effectiveness of price-ceiling regulations: The case of fluid-milk market in Israel. No. 888-2019-2201. 2018.

Cochoy, Franck, Johan Hagberg, and Hans Kjellberg. "Price display technologies and price ceiling policies: governing prices in the WWII and postwar US economy (1940–1953)." Socio-Economic Review 19.1 (2021): 133-156.

Ye, Mao, Miles Zheng, and Xiongshi Li. Price ceiling, market structure, and payout policies. No. w28054. National Bureau of Economic Research, 2020.

Zhang, Yingxin, Subodha Kumar, and Xiangpei Hu. "To Help or Not to Help: A Game-Theoretic Analysis of Regulation GPOs' Price-Ceiling Policy." Available at SSRN 3543706 (2020).