Principles of Economics- Mankiw (5th) 124

Principles of Economics- Mankiw (5th) 124 - 128 PA R T T W...

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128 PART TWO SUPPLY AND DEMAND I: HOW MARKETS WORK economists usually oppose price ceilings and price floors. To economists, prices are not the outcome of some haphazard process. Prices, they contend, are the result of the millions of business and consumer decisions that lie behind the supply and demand curves. Prices have the crucial job of balancing supply and demand and, thereby, co- ordinating economic activity. When policymakers set prices by legal decree, they ob- scure the signals that normally guide the allocation of society’s resources. Another one of the Ten Principles of Economics is that governments can some- times improve market outcomes. Indeed, policymakers are led to control prices be- cause they view the market’s outcome as unfair. Price controls are often aimed at helping the poor. For instance, rent-control laws try to make housing affordable for everyone, and minimum-wage laws try to help people escape poverty. Yet price controls often hurt those they are trying to help. Rent control may
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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