Экономические науки

Yana Zakharova, a 1^st year student

PhD Olena Zhukova, science and language supervisor

Donetsk State University of Ukraine

Price Ceilings and Price Supports

During national emergencies, the government sometimes imposes limits on prices, not allowing them to reach their equilibrium level. For example, during World War II, the governments did not allow the prices of foodstuffs to rise to their equilibrium levels, as they felt that it would be unfair and highly unpopular. As a result, the quantity demanded exceeded the quantity supplied. In other words, there was shortage.

As the price system is not allowed to do the rationing, some formal system of rationing or allocating the available supply of the product may be needed. Thus, in World War II, families received ration coupons which determined how much they could buy of every commodity. And in 1979, when the Organization of Petroleum Exporting Countries cut back oil production and reduced exports of oil to the United States, there was serious talk there that gasoline and oil might be rationed. Such rationing schemes may work well in emergencies (over short periods of time), but they can result eventually in serious problems, as prices are not allowed to regulate production and consumption.

Consider, for example, the rent ceilings that have been imposed on some apartments in New York City. First, the purpose of these ceilings was to prevent rents from rocketing up during World War II. It has resulted in a shortage of housing in New York City. Because they have pushed the price of housing below the equilibrium price, less housing has been supplied than has been demanded. The lower price of housing has kept investors from building new housing, and has made it unprofitable for some owners of housing to maintain buildings. It is socially desirable to allocate more resources to New York housing, but the rent ceilings have prevented this.

Governments may also impose price floors-or price supports, as they are often called. The assumption is that they allow producers of the good in question to maintain their revenues at a higher level. For example, the federal government has imposed price supports on a lot of agricultural commodities that might increase farm incomes. The result is that the quantity supplied exceed the quantity demanded at the floor price. Thus, there is a surplus of the commodity- and, in the case of agriculture commodities the government has to buy up and store these surpluses.

References

1.See Hemmasi, Cyrus and Kemnitz, Alexander; Price Ceilings and Quality Competition.

2.Daly Anne and Akira Kawaguchi; Competitive Balance in Australian and Japanese Sport.

3.Booth, Ross; Comparing Competitive Balance in Australian Sports Leagues, The AFL, NBL and NRL: Does The AFL's Team Salary Cap and Player Draft Measure Up;p.30.

4.Main, Jim and Holmesby, Russell (editors); The Encyclopedia of League Footballers (1st edition); p. 438. ISBN 1863370854.

5.Florida's Unnatural Disaster, Wall St. Journal, February 4, 2009.

6. Venezuelan businesses say Chávez's price controls create shortages International Heralrd Tribune, January 3, 2007.

7.Chavez Seizes Venezuelan Rice Plants, Associated Press, February 28, 2009.

8. The New American Roget's College Thesaurus in Dictionary Form (The New American Library, Ink., New York 1978).

9. Oxford Basic English Dictionary (Oxford, Oxford University Press, 1994).
10. Oxford Dictionary of English Idioms (Oxford, Oxford University Press, 1993).
11. Roget's Thesaurus (Penguin Books, Harmondsworth 1966).
12. F. T. Wood & R. Hill Dictionary of English Colloquial Idioms (The MacMillan Press Ltd, London 1979).

13. L. Urdang A Basic Dictionary of Synonyms and Antonyms (Vision Books Private Ltd, New Delhi 1983).

14.The Cambridge Encyclopedia of the English Language (Cambridge University Press, Cambridge 1995).