Economic

Question

what do economists mean when they say that "price floors and ceilings stifle the rationing function of prices and distort resource allocation"??

Answer 1

最佳解答

1.Price floors prevent suppliers from lowering the price so that every unit they attempt to sell will be bought, creating a surplus. Price ceilings prevent suppliers from raising the prices so that there will be no excess quantity demanded, creating a shortage.

The rationing function of prices normally prevents shortages and surpluses.

2.When unrestrained, prices rise and fall to correct imbalances between the quantity supplied and quantity demanded in a market. If sellers find themselves at a given price with more output than consumers are willing to purchase, the price will fall. Likewise, if the market is not offering enough of a good to satisfy consumer demand, the price will rise. Price floors and ceilings prevent price movements to correct these imbalances. When a price is set above equilibrium (i.e., a price floor), sellers will produce more than the market can support, diverting resources away from more highly valued uses. Price ceilings result in an underallocation of resources toward a particular good, where the excess demand (shortage) reveals that consumers value the good (and therefore the resources used to produce it) more than what the market currently offers.