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Stetson University Economy Under Stressful Conditions Discussion

Stetson University Economy Under Stressful Conditions Discussion

Question Description

Think of this assignment as a debate. Your reading on the topic of price controls should allow you to have some insights on certain situations that could emerge under stressful conditions. Imagine that a natural disaster struck a certain area of the country or a pandemic. Immediately basic goods such as water, toilet paper, gasoline, food, and others became “scarce.” These goods are only available for sale at exorbitant prices. The local government, in an effort to protect its citizens, has determined that these basic goods will be subject to strict price controls and anybody attempting to sell these goods at above stipulated prices will be jailed for a minimum of 10 years. It seems unfair for some to gain at the expense of others.

Debate your position regarding these issues.

(1) Why should or shouldn’t a government implement a price control in this type of situation?

(2) Should in midst of disaster a seller be allowed to sell without price ceiling? Why or why not (based on economics theories we learn in the class)?

(3) Who gains and who loses when exchanges outside of the price control system take place?

(4) Would you be entrepreneurial and take a risk despite the penalties associated? If you would, under which economic conditions? If you would not, under which economic conditions

(5) Does a price control in this type of situation lead to an efficient use of the basic resources? Or does it lead to a difference goal? Why or why not? Which economic goals should be the goal of that affected area? Why?

You are more than welcome to add many other aspects, data, facts, and analysis to the discussion.

REMEMBER: This is not a business ethic class or a law class or a religious study group or a personal story time. Use economics theories when you debate each point and argue your case.

. You are required to create one original post and reply to at least two postings of other students for each discussion You must contribute to each discussion within the deadline. The discussions must be posted in the Discussion Forum of our online classroom. To access discussion topics, click on Discussions. Points will be awarded based on the grading criteria below. Remember that the discussions take the place of classroom participation. So, please devote sufficient time and effort to this important part of our course. Your posting must be a minimum of 350 words and your thoughtful response to someone else’s posting must be a minimum of 250 words

Grading Criteria forDiscussionDiscussions awarded (A)1.Discussions that earn a grade of “A” will answer, raise and discuss an issue thoroughly andthoughtfully.2.You will also respond to at least TWO other students.3.All of your original and replied postings must clearly demonstrate and relate the useof one ormore economics concepts/theory/framework in the discussion and clearly relate it to the main topic.(Ex. Discussing about moral, fair, or law without relating it to economic theory would not fitthiscriterion.)4.Each posting must include supporting evidence, details, examples, and citations (live links if theyinvolve online research).5.Each posting should add new information, and new thinking. The posting should enhance thecritical thinking process and stimulate further discussion from other students.6.Each posting is presented clearly and demonstrates both professional vocabulary and writingstyle.7.All of your postings can NOT be posted on the same day. You should post early and go backoften to reply or post more original postings.8.The student must read most postings

response 1 :

1- The government should implement a price control in a scenario involving the scarcity of basic goods such as food, gasoline, water, and toilet paper. This is because the price control concept would boost the people’s accessibility to these goods, especially considering that unfordable prices would limit low-income families. According to the theory of price control, the government has the mandate to control market conditions to facilitate a balance between demand and supply, at a reasonable price for the consumer (Paesani & Rosselli, 2016). Thus, implementing a price control is beneficial to consumers and suppliers.

2- Price ceilings are adopted to regulate the prices set by suppliers for specific commodities, especially during uncertain economic times. Thus, during a disaster, sellers should not be allowed to sell without price ceiling. Based on the price control theory, price ceilings play a part in ensuring that consumers’ needs, and interests are not compromised for profitability during a disaster (Rockoff, 2019). For example , in an pandemic involving the disruption of the supply chain for one good, the government must limit the pricing strategies adopted by producers/sellers of the other good.

3- Consumers are the biggest losers when exchanges take place outside of the price control system. This is because producers/suppliers would take advantage of the market conditions to make more profits from the available water, food, and toilet paper resources. Suppliers would gain based on the scope of operations and the ability to sustain operations despite the limited resources. The price control system, both price floors and price ceilings, limit the ability of investors to make money from the available resources. This would change if businesses were allowed to operate outside this system.

4- I would pursue my entrepreneurial interest at the expense of the penalties associated with the government’s price control system under normal economic conditions where there is no inflation and demand and supply are at equilibrium. An increase in the demand for goods such as food and water would prompt a bid to raise the price, as it would result in more profits. If the government chose to adopt the price floors approach, I would observe to the price control restrictions under economic conditions where the cost of operation is sustainable. This is because, economic conditions pertaining to consumer spending power influence business stability and profitability.

5- Under the price control theory in economics, the role of the government during a disaster revolves around ensuring that the economic goals are met but more importantly, consumers and buyers are protected from exploitation by unscrupulous businessmen who would want to take advantage of a crisis to make abnormal profits. This is because, during an economic crisis, there is always a risk that unscrupulous supplier will hood goods in order to create artificial scarcity which will lead to an increase in pricing with a view to make more profits. Therefore, the government should enforce price control during a crisis to ensure efficient use of basic resources and protect the consumers. The concept of scarcity can be used to explain the importance of price controls, especially when basic goods or resources are limited. Under the supply and demand law, the depletion of basic resources can only be halted by price controls encouraging producers to offer commodities while discouraging wealthy buyers to purchase the available resources. Therefore, price control can aid in the efficient allocation of basic resources. Based on the scarcity economic theory, necessities such as food and water can be managed better with the implementation of price ceilings and price floors (Paesani & Rosselli, 2016).

References:

Paesani, P., & Rosselli, A. (2016, May). The wartime economy and the theory of price controls. In STOREP 2016-Engines of growth and paths of development in the minds of analysts, policy makers and human beings.

Rockoff, H. (2019). Price Controls. The Library of Economics and Library. Retrieved from https://www.econlib.org/library/Enc/PriceControls….

response 2 :

(1) Why should or shouldn’t a government implement a price control in this type of situation?

The move by the government to implement price control in the situation is necessary. Price control would see to it that essential goods are available for all buyers irrespective of financial standing (Cavallo, Cavallo & Rigobon, 2015). The government can pass a binding floor price on life-essential products. They include medicines, water, among others, since some sellers and producers may take advantage of such a situation to stretch their profit margins.

(2) Should in midst of disaster a seller be allowed to sell without price ceiling?

Sellers in any market seek to maximize their profit margins and therefore sell products to the highest bidder. The same stands even amid a crisis. They gouge and take advantage of buyers to the possible extent. Market prices rise after a disaster, and it is necessary to allocate scarce resources, doing away with shortages, and pooling the supplies required to such an area. Market-based prices may influence the market positively, and a seller should be allowed to sell without a price ceiling. It will attract more suppliers and create a wider variety of goods for a consumer.

(3) Who gains and who loses when exchanges outside of the price control system take place?

Maximum prices negatively affect consumers (Murphy, Pierru & Smeers, 2019). It is because setting up of price ceilings results in lower supplies and potential shortages. Therefore, consumers may result in illegal activities to try to acquire the needed goods. Setting up minimum prices results in over-supply of goods, and many may go perishable, negatively affecting the suppliers. Price controls generally deform the standard nature of markets, leading to oversupply or shortage, affecting both consumers and suppliers.

(4) Would you be entrepreneurial and take a risk?

I would not take a risk in either economic conditions. It is because the penalty of risk may be too vast, resulting in bankruptcy or breaking of the law. The two would affect my business reputation and may result in the collapse of a business enterprise.

(5) Does price control in this type of situation lead to an efficient use of the basic resources or does it lead to a difference goal?

Price control in such a situation leads to different goals. Intervention by the government will disadvantage the producers and suppliers, and they may decide not to meet the market demand as they would make losses. The ripple effect would result in consumers lacking enough goods to meet demand. The economic goal should be letting market prices prevail, an impact that would catapult the increased number of investors in anticipation of increased profits. Soon, the supply would equal demand, and the market would re-stabilize itself.

References

Cavallo, A., Cavallo, E., & Rigobon, R. (2015). Prices and Supply Disruptions during Natural Disasters. Review of Income and Wealth, 60, S449-S471. doi: 10.1111/roiw.12141

Murphy, F., Pierru, A., & Smeers, Y. (2019). Measuring the effects of price controls using mixed complementarity models. European Journal of Operational Research, 275(2), 666-676. doi: 10.1016/j.ejor.2018.11.051


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