After a major disaster such as the Los Angeles earthquake...

Name: Problem 9, Chapter 2: Microeconomics
Uploaded: 2021-09-20T20:36:11-08:00
Duration: 2 min 34 s
Channel: Kaylee Mcclellan
Description: After a major disaster such as the Los Angeles earthquake and hurricanes such as Katrina, retailers often raise the price of milk, gasoline, and other staples because supplies have fallen. In some states, the government forbids such price increases. What is the likely effect of such a law?

After a major disaster such as the Los Angeles earthquake and hurricanes such as Katrina, retailers often raise the price of milk, gasoline, and other staples because supplies have fallen. In some states, the government forbids such price increases. What is the likely effect of such a law?

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

Price Ceiling

A price ceiling is a government-imposed limit on how high a price can be charged for a product, even if market conditions such as a reduced supply would normally lead to higher prices. This intervention is typically designed to protect consumers from sudden price surges during emergencies, but it can have unintended consequences in a free-market system.

Supply and Demand

The principle of supply and demand is fundamental to economics, determining the equilibrium price and quantity in a market. When supply decreases during emergencies and prices are not allowed to adjust upward due to a price ceiling, the natural balance between supply and demand is disrupted, resulting in market inefficiencies.

Market Shortage

A market shortage occurs when the quantity demanded exceeds the quantity supplied at the prevailing price. In the context of a price ceiling imposed during a disaster, the artificially low price prevents the market from reaching equilibrium, often leading to a persistent shortage of essential goods.

Transcript

Please give Ace some feedback