Market in Action
Markets in action
It is obviously clear that the market affects our daily lives, which has become an indispensable part for us. However, even though the market is so powerful that it can perform effectively in most cases, sometimes it fails to maximize the utility of the limited resources. Under this situation, in order to achieve goals of equity and social efficiency, it is governments throughout the world that intervene the market in the means of adopting various policies. This essay will analyze two real-life examples of government intervention. One is the policy of rent control by applying the theory of price ceiling and the other one is the drug control policy, using the theory of the price elasticity of demand and supply.
When it comes to the theory of price ceiling, the government policy of rent control is supposed to be a good example. Actually, without the intervention of governments, the market, which is just like the invisible hand, can bring buyers and sellers together. It other words, it means that the market can lead people interested only in pursuing their own interests to make choices that promote the interests of others as well (Lee,1998). Nevertheless, It is often argued that the free market could not distribute scarce resources fairly. As governments in terms of local or national ones, it is their bounden duty to achieve the maximum equity among all the citizens. Nowadays, as the price of housing rises rapidly, ordinary people could not afford to rent houses, especially for those young people. Therefore, aiming at helping those people to live in a house, governments in many regions lease the policy of rent control, which set a maximum price below the equilibrium price that generates by the free market. Then, outcomes of this policy will be analyzed both from the short run and the long run. Firstly, the price elasticity of demand and supply are less elastic in the short period. The reason is that in the short-term, the amount of houses is
It is obviously clear that the market affects our daily lives, which has become an indispensable part for us. However, even though the market is so powerful that it can perform effectively in most cases, sometimes it fails to maximize the utility of the limited resources. Under this situation, in order to achieve goals of equity and social efficiency, it is governments throughout the world that intervene the market in the means of adopting various policies. This essay will analyze two real-life examples of government intervention. One is the policy of rent control by applying the theory of price ceiling and the other one is the drug control policy, using the theory of the price elasticity of demand and supply.
When it comes to the theory of price ceiling, the government policy of rent control is supposed to be a good example. Actually, without the intervention of governments, the market, which is just like the invisible hand, can bring buyers and sellers together. It other words, it means that the market can lead people interested only in pursuing their own interests to make choices that promote the interests of others as well (Lee,1998). Nevertheless, It is often argued that the free market could not distribute scarce resources fairly. As governments in terms of local or national ones, it is their bounden duty to achieve the maximum equity among all the citizens. Nowadays, as the price of housing rises rapidly, ordinary people could not afford to rent houses, especially for those young people. Therefore, aiming at helping those people to live in a house, governments in many regions lease the policy of rent control, which set a maximum price below the equilibrium price that generates by the free market. Then, outcomes of this policy will be analyzed both from the short run and the long run. Firstly, the price elasticity of demand and supply are less elastic in the short period. The reason is that in the short-term, the amount of houses is