My son doesn't want to come back home this weekend, so we picked him up at his dorm and went to downtown Seattle to have another delicious lunch at New Star Restaurant after three weeks. Yes, today is our once every 3 weeks routine of buying groceries at Ranch 99 Chinese Market and Costco.
Waiting for UW taking Utah at 4:30pm to be televised on Fox, I am writing my diary for last Tuesday. I probably won't write anything really incurring during that day but my resumed Presidential Campaign. I will use the concepts of Price Ceiling and Floor as well as Quota to walk you through the adversities of government interventions.
Price Control is a legal restriction on how high and low a market price may go. Purpose is to manage the price of the product or service reasonably. But the result often goes negatively to drive a lot of inefficiencies even crimes.
Price Ceiling is to set a maximum price to allow sellers to sell. In Krugman and Wells' textbook, they raised the example of apartments rental market in NYC. Though it may resolve the issues of skyrocket rents, which would be unaffordable for most of working families, The inefficiencies are driven by this price control can be:
- Low Quantity
- Allocation to Consumers
- Wasted Resources
- Low Quality
- Black Markets
Price Floor is a minimum price buyers must pay. Minimum hourly wage is a very apparent outcome of this control. Though it tries to ensure working families to maintain a basic living standard, it may artificially increase the cost of running businesses, then force many people unemployed. The inefficiencies are driven by this one can be:
- Low Quantity
- Allocation of Sales Among Sellers
- Wasted Resources
- High Quality
- Illegal Activity
In addition to price controls, Quota is quantity control regulated by government. In Krugman and Wells' book, they raised the example of Medallion System of Cabs in NYC. Though it may help resolve city congestions and pollutions, it causes the problem of scarcity of convenient transportations and has more unproductive business activities created: in addition to earning fares by driving cabs, medallion owners can rent it out to make a profit, which doesn't create any more wealth in aggregate. It also creates a weird business practice: trading the medallions.
In my opinion, price and quantity controls should be replaced by well-designed and regulated wealth distribution system controlled by government, let markets run their own natural games.
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