Participate in a discussion with your classmates regarding price ceilings and pr
ID: 1199694 • Letter: P
Question
Participate in a discussion with your classmates regarding price ceilings and price floors in the market. Review the “EYE on YOUR LIFE” caption titled “Price Ceilings and Price Floors” on page 183 in the textbook. Develop your own policy position, or approach, regarding price floors and price ceilings. Discuss your approach by utilizing the examples in the textbook as follows:
• Price Ceilings: Discuss whether you think we should continue to have a zero price for using a freeway. Or should we have transponders mounted on the dashboards of vehicles, as practiced in Singapore, which monitor and track the miles-driven within a city. Is this technique a non-starter for you? Although, on the bright-side, could you imagine not being stuck in slow-moving traffic again?
• Price Floors: Discuss whether you think we should continue to have a Government-regulated minimum wage law. Have you wanted a job, and been willing and available to work, but unable to get hired? Would you have taken a job for a slightly lower wage, if one had been available?
Explanation / Answer
a) It is better to have a system to monitor the miles driven rather than pursuing zero price for a freeway. Now that we have the technical capability in the form of GPS, a charge can be imposed on every mile we use rather than the conventional practise of collecting a per-gallon tax. The charge would be highest during peak hours when demand is at the highest, and lowest in the middle of the night. The revenue generated by per-mile pricing could be used to increase both capacity and to maintain highway systems. This revenue-producing result of demand-pricing is precisely how a utility works.
b) Minimum wage laws enhance the work ethic and increase the standard of living of workers, and decrease the cost of social welfare programs. It also protects the works against exploitation at the hands of the employers. But this legislation would affect small businesses that are unable to absorb the cost of higher pay-rolls. This will eventually force the employers to cut back on hiring, would encourage citizens to enter workforce at the cost of education resulting in outsourcing and high rate of inflation. An alternative to the minimum wage laws is the Earned Income Tax Credit (EITC) which helps low-income wage earners through decreased taxes and tax refunds. They will be bestowed with a basic income known as unconditional social security system, which periodically provides the citizens with a lumpsum of money.
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