Give two examples of actions taken by the administration of...

Name: Problem 3, Chapter 2: Microeconomics and Behavior
Uploaded: 2023-12-29T18:07:05-08:00
Channel: Rashmi Sinha
Description: Give two examples of actions taken by the administration of your college or university whose effect is to prevent specific markets from reaching equilibrium. What evidence of excess supply or excess demand can you cite in these examples?

Give two examples of actions taken by the administration of your college or university whose effect is to prevent specific markets from reaching equilibrium. What evidence of excess supply or excess demand can you cite in these examples?

Key Concepts

Market Equilibrium

Market equilibrium refers to the state in a market where the quantity supplied matches the quantity demanded at a particular price. In an unregulated market, prices adjust to balance supply and demand, leading to efficient allocation of resources. This concept is fundamental in economic theory and analysis because any deviation from equilibrium, often due to external interventions, results in market inefficiencies such as shortages or surpluses.

Price Controls

Price controls are regulatory measures, such as price ceilings or price floors, imposed by an authority (for instance, a college administration) that set maximum or minimum prices. These controls prevent the natural adjustment of prices that would normally occur in a free market. When a price ceiling is implemented, it can lead to excess demand because the controlled price is set below the equilibrium level, causing shortages. Conversely, a price floor set above equilibrium can result in excess supply, as the market price is forced above where supply meets demand.

Excess Supply and Excess Demand

Excess supply and excess demand describe the conditions where the quantity supplied exceeds the quantity demanded or vice versa. Excess supply, often a consequence of price floors, indicates a surplus in the market where goods or services are available in quantities beyond what consumers are willing to purchase at the controlled price. Excess demand, frequently a result of price ceilings, reveals a shortage as consumers attempt to purchase more than what is available. These phenomena provide clear evidence of market disequilibrium caused by external regulatory interventions.

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