Chapter 6: Supply, Demand, & Government Policies

Chapter 6 discussed what happens to a free market when government intervenes. The government will intervene when policymakers believe that the price of a good or service is unfair to buyers and sellers (where buyers and sellers always have opposing interests). A price ceiling (legal maximum of the price at which a good can be sold) is normally created to benefit the buyers, while a price floor (legal minimum) is created to help the sellers. Both of these can lead to inequities and a disruption of the equilibrium. 

Shortages can occur when the equilibrium price is above the price ceiling. This leads to long lines, a biased preference towards buyers, etc. A real world example is when gasoline prices rose. This was due to the government imposing a price ceiling, thus causing a shortage.  The textbook also talked about rent control and its adverse effects: low prices mean landlords build less houses, there is a greater demand to live in apartments, housing is lower quality, etc.

Price floors, though with good intent, also has adverse effects; if the price floor is above the equilibrium price, a surplus can occur. One controversial example is minimum wage, where the standard of living is increased for working individuals. On the other hand, teenage drop out rate is increased and the wage is barely enough to live an adequate lifestyle.

I enjoyed this chapter a lot. The ideas were easy to follow and it was interesting relating what we've been learning to controversial topics today. I would like to go over rationing a little more (how is there rationing in a surplus?) since it was briefly mentioned.