Chapter 6

Chapter 6 is titled “supply, demand, and government policies” and focuses on different controls on prices that the government can institute, particularly price floors and ceilings, and the different results if they are binding or not. It also introduces the basic idea of taxes and the effects on the market when they are either placed on buyers or sellers, and that in the end it will fall more heavily on the side which is less elastic.

This article talks about food and basic product shortages in Venezuela as a believed result of government imposed price controls to “make a range of foods and other goods more affordable for the poor.” Although it is a prosperous and well off country, there was a wide prosperity gap between the wealthy and poor, as well as having extremely high inflation of nearly 30% so that companies would withhold their products to cause shortages so they could increase prices, which cause these price controls to be imposed. However the price ceiling was set too low so producers didn’t make a profit, causing them to cut back on production. There were extreme shortages of products even in government subsidized grocery stores from private companies seized by the government for the “national interest”, however despite these problems people still believed it was beneficial because of how extreme the inflation was, yet in the long-run it will only be worse. This is also causing prices to rise elsewhere, such as in the black market and on products not under price control. This case relates entirely to this chapter and the governments decision of implementing price controls, and how that can result in a shortage of products and no profit for the producers all to make it more affordable.

The case of speculators bringing in water bottles after Hurricane Katrina and selling them at an extremely high rate shows a lack of morals and is taking advantage of people at a time when the are most desperate. Price controls would be a good idea in this time because it is helping people who have just had everything taken away from them and the water bottles didn’t need to make a large profit to the producers because it should have been a time when they were giving and not taking advantage of people. It is unfair for them to demand people to pay high prices for something that they need to survive like water when everything has just been taken away from them.

The two situations are different because in Venezuela the people who are suffering are the producers because they aren’t making enough money to continue production due to price controls and for Hurricane Katrina the buyers suffer because there is no price control to make it fair and affordable for them to purchase necessities. Supply and demand in both are similar because the demand is the same for the products however the supply is fluctuating by decreasing for the first scenario and becoming more expensive for the second. The information conveyed by the price in both situations is that there is an issue at the time, although the difference is that the government has convened in the first case which lowered the price and did not in the second which caused it to be far overpriced. Prices tell people to behave by not allowing them to overprice or underprice their products to harm the buyers or the sellers and make a sale unfair.

The article I chose is by the New York Times Magazine and is titles “the $15 minimum wage doesn’t just improve lives. It saves them” by Matthew Desmond. In this article the increases in minimum wage is described as turning it into a living wage. The article highlights the lives of two people who have experienced a minimum wage increase and how it has basically saved their lives.It is not focused on the negatives of an increase, such as an increase in unemployment, but on how it improves these peoples lives, especially their health and children. A doctor is interviewed saying that a $1 increase in the minimum wage would save more lives than a new heart drug. The article also talks about the intangible benefits that a better wage provides, particularly that it gives you dignity, value, safety, reduced stress and anxiety, a clearer mind, and free time. While the article does not focus on whether the price floor is binding or not, which would result in a surplus in labor and unemployment, it instead focuses on the benefits of an increased minimum wage and how it will lead to better and healthier lives and therefore better productivity and standard of living.