How does this relate to the theories from the chapter?
Now consider a different case. After Hurricane Katrina and after Hurricane Sandy speculators brought in bottled water, but charged quite a lot for it. What might have happened had price controls been imposed? How might speculators have responded? What would have happened to the quantity supplied of water? How about the quantity demanded? Where does the concept of fairness fit into this subject?
Last, choose an article about increases in the minimum wage and comment on it using the theories from this chapter in your comments.
NOTE – All of the links listed in the assignment for NYTimes, Bloomberg, and the Economist are all behind a paywall now and unable to be read. I already used up my ‘free’ articles from these sites.
The problems in Venezuela’s economy go back to Hugo Chavez. He promised when he became president in 1999 to reduce the wealth inequality, and he did some of that. He enacted price controls on flour, cooking oil, and toiletries. This policy back fired as suppliers stopped making a profit, so they stopped producing. When socialist policies go too far they hurt the overall economy. The greed of capitalism usually motivates suppliers to produce goods and services that are needed (demand) by the public. This helped lead to the perfect storm that Venezuela is in now, lack of infrastructure investment, sanctions, and the key industry oil price drop, all added up to this disaster.
Throughout this book, and other economics classes I have been a part of, the point of price controls, ceilings and floors, being a bad idea are always reiterated by economists. Price controls are generally a bad idea. They can create shortages, making it harder for anyone to get an item, not just those in need. Suppliers and sellers need to be motivated to supply. Hurricane Katrina was a disaster in which many lost their lives, their homes, their pets, it was terrible. Those bringing items to the victims of Katrina when they needed it most were mostly trying to being helpful. When items are considered ‘essential’ like food, water, shelter, clothing, this does seem like charging too much when the victims lost just about everything and some were already very poor to begin with, it seems like it is wrong. From an economist point of view you want the market to be efficient with scarce resources, and let the laws of supply and demand move the market equilibrium prices accordingly. When suppliers are motivated by profit and the rising prices, they will try their best to supply more. If you set a price control on bottled water, you may have seen suppliers unmotivated and reduce efforts to increase supply. The demand for water at that time was sky high and would be until the water drained out, plumbing and electrical could get back in order to supply water again.
The question of Fairness is a tough one to answer definitively. Economists would say that we should let supply and demand determine the market price and those with money would pay the price. But when we discuss a necessity to live like food, water, shelter, clothing, etc. This subject gets tricky. Water is a basic need for all human life. The government realizes this and helps local water utilities to provide clean water very cheaply. Even in states with no water like Arizona. Personally, I believe that this is when we need government the most. During a disaster like Katrina. They have the resources to help in times of need. We are a country of great wealth and opportunity. I don’t see any reason why any human should die homeless and starving on the streets. Our basic needs should be met easily. Our infrastructure should be innovative enough to withstand any natural disaster on our land. Our country should be #1 in happiness, health, and life span. But we aren’t… .yet.
Minimum wage is another tough subject to discuss as both sides of this argument are dug in really deep. Nationally, having a minimum wage set at the national level doesn’t always make sense as the cost of living across our vast regions varies. The cost of living in Arkansas is much different than in New Jersey. States or cities having a minimum wage makes a lot of sense and helps prevent labor abuse,. But to set an amount at the national level might hurt some local economies. Small business owners employ 99% of USA Workers. They take on a lot of risk but their ceiling for earning potential is much higher than the average wage earner. They have a lot of things to pay for and labor is usually one of their largest costs. Should they have the right to pay based on market equilibrium, even if that means that some worker can’t make enough money to afford a decent lifestyle? I think the government should look closer at the local data and let the states or counties, or even cities decide the minimum wage based on the housing and other costs in their area. I can imagine no one can survive in New York City on minimum wage alone, as the cost of living in the city is very high. The national minimum wage should stay below where most all of the local wage levels are set. For the working poor, the minimum wage helps the low skilled workers survive, but this does have an effect on the overall unemployment. Opponents of the higher minimum wage want the low skilled workers to get more skills, and raise their ability to earn more money. Studies have shown that most minimum wage earners are younger, high school students that are not heads of households.
Dude.World 