Abstract
Many markets face some form of government intervention. This is sometimes due to the presence of market failure and sometimes out of equity concerns. In this chapter, we consider the many effects of market intervention by governments. Several examples of rent controls are discussed from the popular 1990s television sitcom Seinfeld. The chapter also considers minimum wage laws and laws against price gouging in the wake of a natural disaster. In each case, the benefits, costs, and legislative alternatives of each law are discussed and examined.
Many markets face some form of government intervention. This is sometimes due to the presence of market failure and sometimes due to the equity concerns of policymakers. In this chapter, we consider the many effects of market intervention by governments.
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Notes
- 1.
A free or unregulated market does not always represent a socially optimal form of allocation for a good. Rather, this is the case provided that a good is competitively provisioned and competitively bought. If there are too few suppliers, we have oligopoly market power on the supply side. If there are too few buyers, we have oligopsony market power on the demand side. If market power exists on either side of a market, free market allocation is no longer efficient. In such a case, a freely adjusting price mechanism is like a poor basketball coach in that it can actually coordinate away from the social optimum.
- 2.
We represent upkeep as an average cost because many of these expenses can occur in the long run (e.g., renovations, utility and appliance replacements,…).
- 3.
Mandatory evacuations, when issued, usually affect all citizens who are non-essential to the disaster management and relief effort.
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Seinfeld is rich in economics examples, as demonstrated on: Ghent, L., Grant, A, & Lesica, G. (2020). The economics of Seinfeld. Retrieved from https://www.yadayadayadaecon.com/
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Sanders, S. (2020). Restricting the Marketplace. In: The Economic Reason. Springer, Cham. https://doi.org/10.1007/978-3-030-56043-0_8
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DOI: https://doi.org/10.1007/978-3-030-56043-0_8
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