Does a government imposed price control provide an efficient market Term Paper

Does a government imposed price control provide an efficient market - Term Paper Example This effect is long-term as the elasticity of supply is high and the availability of the product is being rationed by price, eventually black market arises to compensate this shortage. This is a clear indication that the government intervention has reduced the efficiency of the market and created new market failure characteristics like the emergence of a black market where goods and services evade tax through smuggling in addition to violation of several other rules of the trade (Mises, 197-248). On the other hand, price floors raise the equilibrium price for they are set at minimum. These price floors are inclusive of reduced wages and agricultural marketing boards. On condition that the price floors bind, then they will definitely decrease the amount of goods in demand and increase the quantity which is being supplied. Eventually this will create a surplus in the market and thus lower the prices below the equilibrium price. Economists argue that lowered wage laws may subsequently result to increased levels of unemployment and this phenomenon mostly affects the youth as business units often offer high wages (Riesman, 35-78). A free market is a market where the equilibrium price is controlled by forces of demand and supply. When a tax is imposed on such a market; there emerges a difference between supply and demand prices and the equilibrium is disrupted and this results to a tax wedge. When a tax has been imposed on any transaction in then market, the resulting difference between the demand and the supply price is commonly referred to as the tax wedge. Taxes are mandatory payments to the government from the society and they have substantial influence on the normal market trends; basically of the buying and the selling price difference (Mises, 327-361). In a competitive market which is devoid of these price regulations from the government, the equilibrium price is

Market structure Research Paper Example | Topics and Well Written Essays - 2000 words

Market structure - Research Paper Example This implies that product differentiation exists and each one is capable of satisfying divergent consumer needs. Barriers to entry are few thus explaining why the competitors are many in number (Makiw, 2008). The oligopolistic market structure is one in which a small number of players operate, and they can control the market. Usually, these players are large enough and account for a substantial market share. They make decisions interdependently and are highly motivated by the need to cooperate. Therefore, players exert a degree of control over market conditions. Furthermore, this model is characterized by many barriers to entry. A monopoly is a market in which only a single producer exists. The person is therefore capable of exercising considerable control over the market. Products sold do not have close substitutes thus prompting consumers to stick to them. Normally, the monopoly thrives in water distribution, electricity and gas industries. Barriers to entry are also quite high. 2. Real life example of a market structure in my local city A Shell retail outlet is an example of an oligopolistic market in my city. The organization has relatively few competitors in the gas pump market. Retail outlets may be high in number but the number of companies controlling those outlets is relatively few. Furthermore, Shell is a large company that accounts for about 20% of the market share. This degree of concentration in the oil retail industry makes Shell gullible to collusions with its rivals. For a number of times, the company has been accused of setting artificial prices that do not relate to world oil prices. Regardless, the organization’s products are often sold for a price that is relatively close to market rates. In oligopolistic markets, this is typical for many organizations as competition based on price could lead to inefficiencies. Barriers to trade are also substantial as certain restrictions exist. Shell has control over oil as a natural resource. It is also a vertically integrated firm in which other aspects of oil production take place. The facilities and equipment needed to carry out this work are quite expensive. Therefore, new entrants would not have the economies of scale needed to make significant profits in the market. They would have to raise their prices in order to cover production costs, yet this would drive away consumers who would seek inespensice alternatives. Shell also enjoys large revenue streams from its elaborate business model. Therefore, it is likely that a competitor interested in entering the market would have difficulties advertising or matching Shell’s marketing expenditure (Frank and Bernanke, 2009). 3. How high entry barriers into markets influence long run profitability Entry barriers may come in the form of patents, government licensing, benefits that accrue from economies of scale or resource control. Industries with high entry barriers will not have many alternative suppliers. Therefore, mark et forces will be weakened. Profitability will mostly depend on the supply side of the equation. Usually, when a seller sets their prices, they normally do this on the basis of their costs. Marginal costs refer to those additional expenditures incurred when a seller makes an additional item. In markets with low entry barriers, sellers will price their commodities on the basis of