Micro Week 2 DQR
Good afternoon professor and fellow classmates.
Market Equilibrium is vital to a healthy economy. When market fluctuations occur, the equilibrium must be adjusted in order to balance supply and demand.(Rittenberg_Ch1-5.Pdf, n.d.) When governments or other influencers set Price ceilings or price floors, if the natural market equilibrium fails above or below, it leads to surpluses and shortages that otherwise would not have happened. Prices must be flexible because of the potential shift in demand or supply. In a flexible pricing market, the rise and fall of either supply or demand will move along the supply and demand curve in a predictable way.
I do not think the government should set pricing on gasoline or other aspects of the economy. The free-market system provides its on corrections to the market equilibrium. An increase in the price of grapes will shift the market on the demand curve. This will naturally lead to less people eating grapes and eventually lead to a surplus of supply, which will lead grape sellers to decrease the price of grapes to increase demand. With the government potentially setting ceilings on grape prices, it will lead to a point where the market equilibrium is higher than the grape ceiling price. This will lead to shortages since sellers will produce less grapes and demand will not change. With the price ceiling in place the market would not be able to correct itself naturally and could lead to potentially worse effects.
Rittenberg_Ch1-5.pdf. (n.d.). Retrieved December 10, 2022, from
Price flexibility is key to making this economy efficient and it plays a vital role in the supply and demand chain. The flexibility of goods and services contributes to the function of consumer purchasing power, and the general sale of goods and services. Price flexibility is important because it’s one of the few strategies that can help consumers and retailers. Both parties in a transaction have separate strategies, the buyer wants to get the product for the cheapest possible price and the seller wants to net as much profit as they can. The flexibility in price allows for negotiating and encourages sellers to move products that may have a short self-life or have built up in their inventory. The ability to adjust the price to goods and services allows for free-flowing trade, and it brings amazing value to the marketplace to have such flexibility.
Government control over prices can have its benefits and its pitfalls. I personally view government intervention into any part of our life as something negative. The free market works best when it can operate without intervention and can react to consumers voting with their dollars. If a retailer prices a service or product too high then a customer can choose to find a similar product somewhere else, and the seller can choose to be flexible and lower prices or keep them high ultimately to their demise. This strategy has worked for many years and is successful without government intervention. Although there is a caveat, at times when supply of something is so limited, and the demand is so high a seller can take advantage of the consumer. Martin Shkreli the CEO and founder of Turing Pharmaceuticals obtained the manufacturing license of Daraprim, an antiparasitic drug used to treat serious infections for those diagnosed with HIV. Before Turing Pharma the price of this medication was $13.99, the price was then raised to $750 per pill after they obtained the manufacturing license.
This is an example of taking advantage of a customer base that is relying on a product that many would consider “lifesaving”. In this case the US Government had to get involved and “control the level of prices for a product that is really important”. Matin Shkreli was eventually indicted on charges that would violate state and federal law. Shkreli “engaged in anticompetitive conduct to protect monopoly profits on the lifesaving drug Daraprim – banning him for life from the pharmaceutical industry and ordering him to pay nearly $65 million”. He also served 5 years in federal prison, examples like this prove that at times government involvement in prices is important and in fact necessary.
Have a great week!