Econ 101: Price Ceiling and Shortages

Probably bait but..

1. This diagram says nothing about the temporal aspect. Your diagram is static, not dynamic.

So yes, over time producers may (see: may) produce more of the quantity to plug the shortage, shifting the supply curve from Pe to Qd

BUT..

>But if selling that item at Max P is still profitable, why not just make more of that item to eliminate the shortage? It would lead to greater profit.

Quite an assumption to make. Especially if Max P is below the initial input costs.

>Yet economists say that sellers don't have any incentive to make more items during such a shortage, and it sounds to me like they're saying greater profits are not an incentive to do something, which makes no sense to me.

Actually they don't.

>>1568145
>But if selling that item at Max P is still profitable, why not just make more of that item to eliminate the shortage? It would lead to greater profit.
>citation needed

Let me put it this way. Why would you sell something at $20 when you could sell it at $50?

You can't eliminate the shortage in this example since the diagram is static (ie. short term). And you can't say it would lead to greater profit because firstly you don't have any actual numbers to work with and secondly you don't know the elasticity of supply and demand (ie. the incline of both functions)

>>1568148
Addendum to explain this point further:

>Quite an assumption to make. Especially if Max P is below the initial input costs.

Total Profit = Total Revenue - Total Costs

Assume in the above diagram that:

Pe = 10$
Max P = 5$

Total costs (per unit sold) = 6$

Qe = 10 Plumbuses
Qs = 5 Plumbuses
Qd = 20 Plumbuses

First calculate the profit at equilibrium:
Tot. Rev. = 10 * 10 = 100$
Total Costs = 6 * 10 = 60$

Total Profit = 100 - 60 = 40$

Next calculate the profit at Max P:

TR = 5 * 5 = 25
TC = 5 * 6 = 30

Total Profit @ Qs = 25 - 30 = -5$ (Making a loss producing here. The company will cease production.)

If they try to produce a supply to match the demand: Total Profit = (20 * 5) - (20 * 6) = -20$

The best current-day example of this is in Maduro's Venezuela, where the government sets price ceilings on goods, puts the companies out of profit and forces them to cease supplying goods to the market altogether.

>>1568148
>Actually they don't.

It sounds like they do. I have watched multiple videos in which they cry about how shortages caused by price ceilings create longer wait times, but never once address the freaking obvious solution: MAKE MORE ITEMS.

>Quite an assumption to make

But setting a price ceiling below the cost of making an item would be stupid, so can't I assume that it wouldn't happen?

>>1568167
>how shortages caused by price ceilings create longer wait times,

Yes, as in, the ceiling can go in instantaneously, but production needs time scale up to match the new demand. See: longer wait times.

>But setting a price ceiling below the cost of making an item would be stupid, so can't I assume that it wouldn't happen?

Clearly you haven't worked with socialists then.

Either way, you are either retarded, or this is bait.

>>1568178
>Yes, as in, the ceiling can go in instantaneously

Yeah, I get that, but these "economists" act like scaling up production is completely out of the question and that wait times can never ever go down unless sellers can raise their prices.

Anyway, you guys are telling me otherwise, so I'm relaxed now.

>>1568145
The point your missing is that the supply curve is aggregated. Every quantity supplied is made by different companies with different cost struktures. When they have to make more of said item the cost will go up. (See marginal costs) So that some companies can provide only some quantity of the item at a given price while remaining profitable and others cant. If the price rises the less effizient companies can produce plus the already prducing. Look up welfare

File: chap12pp-31-728.jpg (83KB, 728x546px) Image search: [Google]

83KB, 728x546px

>>1568191
Yeah. Static vs. dynamic seems to be what you are missing (pic related). It's also important to realize, this is also a basic linear model. Highly theoretical.

Economics models tend to be highly reductionist to the point where they can actually be oversimplistic, often even to the point where it can be counterintuitive.

To look into a more dynamic type model, you would need to start to define shifts on the curve by time, like the related picture.

Microeconomics 101. Also, SR vs LR please