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Chapter 6 reflection

The first article about Venezuela illustrates how a price ceiling limits potential profits, which changes incentives for producers, resulting in a decrease in supply. Not only that, but consumers are more likely to hoard because the item is forced to sell at a price below equilibrium. The combined effect is that a shortage occurs because the supply is less than the demand. The market cannot correct itself unless the government lifts its policies.

The letter to the editor put it well, saying "By preventing prices from telling the truth about underlying conditions of supply and demand, such controls spread economic lies." This in turn causes people to behave in ways that do not align with reality and could potentially cause the problems to become worse.

The last article references hyperinflation, which is the phenomenon that occurs when the supply of paper currency is rapidly increased. As the supply increases, the currency loses its value, and it takes more to buy the same amount, which looks like rising prices.

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As for the bottled water situation during Hurricane Katrina, although it seems like perhaps some kind of rationing program would increase equality, it would be rather inefficient in the face of a sudden and widespread natural disaster. Price controls would have an even worse outcome. If the sellers of bottled water could not make profits to be worth their time because of artificially low prices, then they would not have an incentive to supply the water. The reduced supply would be hoarded by whichever consumers could manage to buy it first. This would lead to an even more substantial shortage of water in a place that is already hurting. When the market is allowed to react naturally and prices reflect the conditions of supply and demand, a new equilibrium will emerge. This will result in the most equal distribution as people consider their purchases more carefully.

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http://www.latimes.com/business/la-fi-minimum-wage-impacts-20160421-snap-htmlstory.html

This article covers some of the social impacts that would result from raising the minimum wage. It also asks questions like, "If policymakers blame high crime in cities such as Chicago on steep poverty and unemployment, Laffer asked, should they still advocate for a high minimum wage that might reduce jobs for the youth and exacerbate social problems?".

When the minimum wage increases, employers think twice about who they hire. Those who have the least amount of skills could be at an even larger disadvantage as they have to prove that they are worth more money. Employers would try to save money by hiring fewer workers, or reducing hours per worker, or reducing benefits. Some may even try to pay under the table, resulting in workers who are not protected for on-the-job injuries. None of these actions benefit society, so the perceived benefits of a wage increase are offset by the unintended consequences.

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