Chapter 69, Problem 1CYU

To determine

The effect of the policy on the production of a college degree, sectors of the economy that are affected adversely, and the sectors of the economy that might benefit when the government places price controls on the market for college professors by imposing a wage that is lower than the market wage.

Explanation of Solution

The effect of the policy on the production of a college degree when the government places price controls on the market for college professors by imposing a wage that is lower than the market wage:

1. If the government places price controls by imposing a wage for professors that is lower than the market wage, the number of college professors will move to other departments or lines of work which results in fewer professors in colleges.
2. And, fewer professors in colleges affect college degrees and courses negatively as there would be a decrease in college degrees.

Sectors of the economy that are affected adversely by the policy of the government may include:

1. An adverse effect on sectors of the economy that are highly dependent on colleges such as students, professors, and faculty because they are directly attached to the college for their goals.
2. Moreover, shopkeepers and textbook publishers for colleges would also be affected adversely by this policy because their customers are students and faculty.
3. Some firms will also affect negatively, especially those which depend on new hires who hold college degrees because there would be a smaller supply of college graduates in the market.
4. The human capital will also decline in the economy due to this policy of the government, which affects all the sectors negatively that depend on human capital.

The sectors of the economy that might be benefitted from this policy of the government:

1. The firms that are competing with colleges for hiring candidates such as different accounting firms can hire accounting professors for the position of accountants, etc.
2. The workers who have a college degree or previously graduated students would be benefitted from this policy of the government because there is a shortage in the supply of graduated workers and they can demand higher wages in the market.

Economics Concept Introduction

Introduction: Price control is a policy that sets the minimum and maximum level of price of different goods and services in the market to make them reasonable or affordable for customers.