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price ceilings and price supports
during national emergencies (чрезвычайные обстоятельства), the government sometimes imposes limits on prices, not allowing them to reach their equilibrium level. for example, during world war ii, the governments did not allow the prices of foodstuffs to rise to their equilibrium levels, as they felt that it would be unfair (несправедливый) and highly unpopular. as a result, the quantity demanded exceeded the quantity supplied. in other words, there was shortage.
as the price system is not allowed to do the rationing (нормирование продуктов), some formal system of rationing or allocating the available supply of the product may be needed. thus, in world war ii, families received ration coupons which determined how much they could buy of every commodity. and in 1979, when the organization of petroleum exporting countries cut back oil production and reduced exports of oil to the united states, there was serious talk there that gasoline and oil might be rationed. such rationing schemes may work well in emergencies (over short periods of time), but they can result eventually in serious problems, as prices are not allowed to regulate production and consumption.
consider, for example, the rent ceilings that have been imposed on some apartments in new york city. first, the purpose of these ceilings was to prevent (предотвращать) rents from rocketing up during world war ii. it has resulted in a shortage of housing in new york city. because they have pushed the price of housing below the equilibrium price, less housing has been supplied than has been demanded. the lower price of housing has kept investors from building new housing, and has made it unprofitable for some owners of housing to maintain their buildings. it is socially desirable to allocate more resources to new york housing, but the rent ceilings have prevented this.
governments may also impose price floors – or price supports, as they are often called. the assumption is that they allow producers of the good in question to maintain their revenues at a higher level. for example, the federal government has imposed price supports on a lot of agricultural commodities that might increase farm incomes. the result is that the quantity supplied exceeds the quantity demanded at the floor price. thus, there is a surplus of the commodity – and, in case of (в случае) agricultural commodities the government has to buy up and store these surpluses.
1. when do governments usually impose limits on prices?
2. what examples of government regulations of prices are given in the textl what were their results?
3. is government regulation of prices desirable?
б) подумайте и скажите:
1. what other examples of government rationing of foodstuffs and other goods do you know? what were the reasons for it?
2. are there any price limits in russia at present? if there are any, give examples.