Essay example --

Folkers 1 Amanda Folkers October 25, 2013 Mr. Spencer Economics 1 Period: 3 Price Floor, Price ceilings, and inflation Folkers 2 The Price floors, Price ceilings, and the inflation of the government funds are increasing. The definition of price floors, â€Å"are prices even just below the point to which it is illegal to buy or sell goods. They can’t go lower than 7.25/ hr or they are breaking a federal law, this is to protect the producer.† A price floor can be set below/ above the market equilibrium price. If the free market price is set higher than the equilibrium, the price floor has a small to no direct change. It ensures prices stay high so that product can continue to be made. If the free market price is lower than the price floor, then a surplus; Consumers find they must now pay a higher price for the same product, then they reduce their purchases or switch to a substitute good. Meanwhile, suppliers find they are guaranteed a new, and higher prices, and so they produce more. There are a number of strategies that the government uses for setting a price floor and dealing with its consequen ces. They can set an easily understood price floor, for the citizens. This price support sets a minimum price, however, here the government buys up any extra supply, or surplus. This is even more inefficient and costly for the government and society. Production quotas usually raise the price by limiting production by giving businesses the opportunity to reduce their production. In America, this technique is used mostly with agriculture. The government pays farmers to keep a portion of their fields production, this leads to a raise in prices. Like price supports, the policy would be more efficient and le... ...instance, when gold was used as currency, the government could collect gold coins, melt them down, mix them with other metals such as silver, copper or lead, and reissue them at the same nominal value. By diluting the gold with other metals, the government could issue more coins without also needing to increase the amount of gold used to make them. When the cost of each coin is lowered in this way, the government profits from an increase in seignior age. This practice would increase the money supply but at the same time the relative value of each coin would be lowered. As the relative value of the coins becomes lower, consumers would need to give more coins and money, in exchange for the same goods and services as before. These goods and services would experience a price increase as the value of each coin is reduced. Therefor causing too much money into the economy.