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Setting Price Controls While Facing Variable Or Uncertain Market Conditions
Author(s) -
Chen Paul
Publication year - 1999
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00031
Subject(s) - rationing , economics , microeconomics , variable (mathematics) , price mechanism , market price , economic shortage , consumption (sociology) , marginal cost , subsidy , production (economics) , limit price , unit (ring theory) , price level , monetary economics , market economy , mathematics , government (linguistics) , mathematical analysis , health care , linguistics , philosophy , social science , sociology , economic growth , mathematics education
Price controls under variable or uncertain market conditions do not lead to market equilibrium. Under different assumptions for the rationing mechanism during shortages and surpluses, I find, assuming small market shocks, that the optimal regulated price can be related in a simple way to the relative slopes of the marginal benefit and marginal cost functions. In addition, if the consumption price may differ from the production price, then consumers should pay less than or equal to what producers receive, implying possibly a unit subsidy to market transactions.