So today in Econ we learned about Price Ceilings and Price Floors and how they really don't help anybody. Sure, a price ceiling will help the consumers and a price floor will help the seller. But what is the residual effect?
Price Ceiling cause shortages - more demand for a product than what is actually produced aka: Lines, rations, and Black Markets. Whoever has had to wait in a line knows that its not very fun. And how would you like it if the government told you what you could buy and how much of it? And then there is just stuff that isn't supposed to happen that people take advantage - more demand than legal supply - well, we'll just go and sell it above the ceiling in our own little secret places.
Application? Rent Control - Officials put a price limit on apartments in Provo at $100/month (this is just a simulation, not an actual comparison. I have no idea what the going price is per month.) Suppose that (due to supply and demand) the market settles at 150 dollars per month in a normal situation. Now renters have to settle lower selling prices. They will do one of two things: make your apartment $100/month quality or just convert their resources (apartment complexes) into something else more profitable. Do you want $100/month quality housing (ie: WORSE than what you have right now)? I wouldn't think so. Although some people would save a ton of money, many would not be able to find an apartment because renters are just not willing or able to work at such a low price. Ergo - Rent Controls are not a great idea nor are price ceilings. Another quick example would be the gas shortage in the 1970's. Lines upon lines upon line upon lines to get gas because there wasn't enough? Why? The government wouldn't allow the market to shift naturally to an equilibrium where producers/suppliers would be able to meet the quantity demanded.
Price Floors have the opposite effect. The government locks in a price for a certain good that can't be lowered and then producers want to produce a ton of it and the demand for that product at that price isn't so high (people don't want to or can't buy it at the specified price). Then what happens? You have a whole bunch of extra product. And that comes with long-term effects as well. You can get the government to buy your surplus, as they did/do with grain. You can get the government to tell you to stop making it. Or you can just put other stuff on sale to attract customers.
Application? Grain - There was/is a set price for grain and so it is valuable for farmers to produce it. Unfortunately, they produce more than what is needed. What is happening? The government is buying all that extra grain and storing it. But with what money? Taxes!! Do you really want YOUR money to go into a non-valuable resource? Maybe it would be valuable for a certain amount of time. But do we really need 50-60 year supply of grain? (This has been happening since the 1950's.) Ergo - Price floors encourage production of a product but reduce the want/demand for that product as well causing a "surplus".
As well as causing shortages and surpluses, it detracts from the "Total Welfare" of an economy. Maybe the buyers get a great discount. Maybe the sellers earn a lot more money. But overall when you compare the gains from the consumer and the producer to the "free market" without any interference, it works better for everyone when there are is no interference.
Now some caveats. This is a perfectly competitive market. There are no outside influences. I am just a beginner at this. BUT, it has been proven mathmatically and I can show you why - through graphs and examples.
Now an application to my own life. Fortunately, the equilibrium for mankind has been set by Heavenly Father. He commands us to be perfect, even as He is ( Matthew 5:
48 - Be ye
therefore perfect, even as your Father which is in heaven is perfect.). Since we are imperfect, we can never ever ever ever ever get close to equilibrium that Justice sets. But, Heavenly Father is merciful and wants us to return. So He provided a way - our Savior Jesus Christ and His Atonement and Gospel. Because Jesus Christ was perfect, he satisfied Justice for his own life. Because he suffered in the Garden of Gethsemane for all of our sins, mistakes, pains and sicknesses, he becomes our creditor. He has told us to have faith in his name, repent of our sins, be baptized by His authority, receive the gift of the Holy Ghost by that Same Holy Authority, and to endure to the end. He knows we are not perfect. He loves us. That's why he suffered and died for us. It's alright if we make mistakes. Christ will help us get to equilibrium - as long as we follow His counsel and commandments. I know this to be true. I also know that the Church of Jesus Christ of Latter-day Saints to be the only true church that has that authority. It has been restored to the Earth after a long period of it being lost. And God has given us the "proof" of this great work. It is the Book of Mormon. God promises you that if you read it, ponder what it really teaches and then ask him in prayer if it is true, He will answer you. He challenged me to do it, and so I did. And here I am telling you that God does answer prayers, there is a true church and that you can have the truth in your life. Just ask. I am grateful for the Savior and His atoning sacrifice for me. I am not perfect, but I will be someday through the atoning blood of the Lamb of God, my King and Lord.
