Venezuela’s government wanted to implement price ceilings that were an issue for the country’s economy. This relates to the chapter because in it, the effect that price ceilings could have on an economy were discussed, and in the article, Venezuela was going through those negative effects. If the government had placed price ceilings that would still allow for companies and farmers to still make money off of their products, then they wouldn’t have been binding price ceilings and there wouldn’t have been an issue. However, because the president believed the prices could be lower while still allowing companies to make money, the ceiling was placed too low and it creating a binding price ceiling because the president miscalculated and set the prices to where the companies were no longer profiting or not profiting enough.
Charging high prices for water after Hurricane Katrina was very wrong. It was taking advantage of people by charging a high price for an inelastic item that people are going to have to buy to survive, regardless of the price. Had there been price controls implemented in this particular scenario, perhaps things would’ve been more fair. Perhaps not though. Maybe the reason the water companies raised prices was because the demand was so drastic that they wouldn’t have been able to keep up in supply unless they charged higher prices. The concept of fairness is very difficult to implement in this case because the water suppliers could’ve tried being “fair” and selling the water at the normal prices, but maybe they would’ve run out of water and that, then, wouldn’t be “fair” to the consumers that were willing to pay the higher prices for the water but didn’t get any because they had run out.
These two situations are different because in the former, the government was placing a binding price ceiling on companies which was driving them out of business or at least out of doing business in Venezuela. In the latter, water companies were taking advantage of a shortage of an inelastic product by driving the prices higher, and there was no price ceiling to stop them. Supply and demand affect both situations in the same way because they both had a higher demand with a lower supply to meet it, except in the former, companies weren’t allowed to raise prices like they were in the latter. Prices tell us that they ultimately control people’s behavior. If left alone, prices will fluctuate and eventually match supply and demand together at an equilibrium point, much like in Hurricane Katrina. It controlled people’s behavior because they weren’t stomping over each other like they do on Black Friday since the prices were so high. If prices are limited by the government though, as we see in the first example, there will be a shortage and that is when people don’t act rationally.
In this article about minimum wage increases, it is discussed how both the Senate and the House have bill propositions for raising the minimum wage to $15 an hour by 2025 or 2023 respectively. This would have a very negative impact as covered in the chapter because it would put people out of work. Sure, some people may be able to keep their jobs and earn more, but companies would now be facing a new price floor which would leave them with a surplus is labor costs, meaning they would need to cut back on workers to be back at the equilibrium point with demand. Furthermore, something not discussed in the chapter is the effect of advancements in technology such as AI (artificial intelligence). If, for example, a company has the option of paying more money for the same amount of labor or paying a one-time fee for a robot to do perhaps even more labor, they may chose to purchase the robot and leave even more without work.
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