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Do you think the government should set price ceilings or price floors?

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koolkid4life | Student, Grade 11 | Honors

Posted March 19, 2013 at 5:10 AM via web

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Do you think the government should set price ceilings or price floors?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted March 19, 2013 at 5:25 AM (Answer #1)

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In general, governments should avoid doing these things.  They typically do not help the people that they are meant to help.  It may be necessary to set price floors such as minimum wages to avoid social strife, but it is generally not a good idea to do this sort of thing any more than necessary.

When the government sets a minimum wage, for example, it tells business owners that they must pay more than they think an employee is worth.  If an employee were worth more (in terms of the money they bring in to the business) they would typically be paid more.  By forcing businesses to pay more than employees are worth, the government is making it more likely that owners will cut back on the number of people they hire.  They will try to make do with fewer employees so as to avoid raising prices for their customers.

Similar things happen when the government sets price ceilings.  It typically drives suppliers out of a market.  By doing so, it makes the commodity less available even though its goal was to make it more available.

For these reasons, economists say that the government should avoid setting artificial price floors or ceilings.

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