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The Professor
The Professor, Taught at USC Years Ago
Category: Homework
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Experience:  Engineering Degree, Tutoring Experience, USC Faculty (Retired)
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This question was previously answered by The Professor however; please answer the additional question listed below.
The poor are the ones who suffer from high gas and electricity bills. We should pass a law that gas and electricity rates cannot increase by more than 1 percent annually." Evaluate this statement in terms of demand-and-supply analysis. Carefully Explain.
I do not agree with this statement because passing such a law means that the government is imposing a price ceiling on the prices of gas and electricity, and price ceilings are usually set below equilibrium price which results in shortages. Once there is a shortage in the market, the prices start climbing up until they reach equilibrium price.
At prices lower than the equilibrium price, consumers will demand a certain quantity, but since the price is below the equilibrium price, suppliers would not supply all the quantity demanded by consumers; prices would have to increase until both consumers and suppliers (Supply and demand) agree on an equilibrium price - which would definitely be above the Price ceiling.
How could price increase if this is in effect a ceiling? Would it really help the poor?
Submitted: 9 years ago.
Category: Homework
Expert:  The Professor replied 9 years ago.
This is a typical fallacious economic argument.

Why not take it to the logical extreme - make gas and electric power free!

(Similar to the minimum wage - if that's such a good idea, why not make it $100 per hour?)

All the economic goods that people "should be entitled to" are produced by entrepreneurs and businesses that use (with some exceptions) private capital, or payments from private sources, as an integral part of their compensation. To make something available "free" or at a reduced cost requires taking that something from someone else.

The economic analysis presented in your question, starting with "I do not agree", is well stated. Unasked by the question is "who will pay the difference so that the 'poor' can receive economic goods at below-market rates".

The only source of money or goods for that purpose, oddly enough, are those that are not poor. Some people would definitely be helped by such a program, at the expense of those who pay for it.
Customer: replied 9 years ago.
Reply to The Professor's Post: How could price increase if this is in effect a ceiling? Would it really help the poor?
Please re answer
Expert:  The Professor replied 9 years ago.

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