Quantity controls

3 Key excerpts on "Quantity controls"

• 

  eBook - ePub

  Limiting Oil Imports

  An Economic History and Analysis

  • Douglas R. Bohi, Milton Russell(Authors)
  • 2013(Publication Date)
  • RFF Press

    (Publisher)

  The transition to no restrictions on domestic output and the removal of quantitative restrictions on imports dramatically altered the conditions under which the domestic crude-producing industry operated. The absence of the quota removed the possibility of a reintroduction of effective market demand prorationing. The power to establish market prices and industry-wide output had been placed in abeyance. While the state laws remained on the books, their only effect was anticipatory in the sense that conditions might some day permit or require their revival.

  Quotas versus Tariffs: Other Considerations

  Recurrent proposals to use a tariff rather than a quota to control imports (e.g., the Ford administration proposal of January 1975) prompt further comparisons of the analytical similarities and differences between these two devices. The equivalence between conventional quotas and tariffs (and the relationship between proportional quotas and conventional quotas or tariffs) as described above assumes a static situation where supply and demand conditions are known with certainty. When uncertainty is introduced and supply and demand conditions are permitted to change, a number of important differences arise that may establish a preference for one or another as policy instruments. In addition, there are other distinguishing characteristics of tariffs and quotas that should be considered, including (1) how the right to import is determined, (2) the ease with which the controls may be administered, and (3) the distribution of the scarcity value of imports. These are discussed in turn below.

  Price versus Quantity Control

  A quota system clearly establishes the maximum quantity of imports that will be allowed into the country.16 Competing domestic producers need not fear additional imports if domestic prices rise. This quantitative certainty makes quotas very appealing to existing domestic producers. Restricting imports requires the domestic price to rise enough to generate additional output and discourage consumption to make up for the decline in imports. How much the price must rise is uncertain, even if producers and consumers could react immediately to any price change.17

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  eBook - ePub

  Energy, Foresight and Strategy

  • Thomas J. Sargent(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  Hansen and Sargent (1980) discuss how to calculate the coefficients of the above equilibrium laws of motion for given values of the structural parameters of the model. Here, we point out that changes in those parameters, including changes in the demand parameters, cause systematic quantitative changes in the parameters of (3.4) and (3.5). In this analysis, we consider the impacts of different types of government policies on the qualitative features of the equilibrium laws of motion for output and inventories.

  IV. The Constrained Equilibrium Under Production Control

  Now, we introduce two regulatory regimes, both designed to enable the authorities to meet their objective of supporting a given target price path Although the most straightforward instrument for accomplishing such a goal is a sales control policy, we begin by considering a production control regime because most observers, such as Epple (1975), agree that the government, in effect, actually controlled petroleum industry production rather than sales.

  Let be the level of production that at time / — 1 is expected to equate the time t market price, P (t ), with the target price, Given knowledge of the inverse market demand curve (2.6), the regulatory agency can determine that

  where

  Et _

  1 Y (t ) = A 1 (L )Y (t - 1), and Et _1 I (t ) is taken with respect to the true equilibrium process of I (t ). Notice that the regulatory agency is assumed to forecast rationally the endogenous variable I (t ), as well as the exogenous variable Y (t ). Substituting (4.1) back into the market demand curve (2.6) implies that, if an equilibrium exists, actual prices at time t are given by

  P(t) = + B 2 [Y (t )

  - Et _

  l Y(t)] + B 1 [I (t )

  - Et _

  l I (t) ] (4.2)

  so that

  Et _

  l P (t ) = for all t (4.3)

  Hence this regime is capable of equating conditionally expected market prices to target prices.

  Under these circumstances, the problem of the representative firm is to maximize the expected discounted value of its profits, (2.5), by choice of a contingency plan for i (t ) subject to knowledge of (2.4), i (-1), and the constraint that its production at time t, be equal to where the law of motion of

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  Foundations of Economics

  A Christian View

  • Ritenour(Author)
  • 2010(Publication Date)
  • Wipf and Stock

    (Publisher)

  15 Price Controls I n the previous two chapters we introduced detailed analysis of one facet of government intervention in the economy. We analyzed the nature and consequences of interventionist macroeconomic policy and discovered that neither monetary inflation nor government spending are efficient ways to expand an economy. Macroeconomic policy, however, is only one category of state intervention in the economy. Another common form of intervention is price controls. Price controls are the result of laws regulating prices at which people can legally buy and sell. Rarely do governments force buyers and sellers to accept a single price to make an exchange. Instead governments prefer to set maximum and minimum prices. Price Ceilings The form of price control governments often use in an attempt to thwart the negative consequences of monetary inflation is the price ceiling. As the name implies, a price ceiling is a maximum legal price. If you attempt to throw this textbook up into the air as far as it will go, what will stop it? What is the barrier above which it cannot fly? The ceiling. Just as the ceiling in an indoor room is the highest a thrown object can travel, a price ceiling is the highest price that buyers can legally pay and that sellers can legally accept. There are two types of price ceilings: effective and ineffective. We will initially investigate the consequences of an effective price ceiling, but first need to understand what we mean by the words effective and ineffective. Typically, those words are taken to mean that something either works well or does not. In our case, however, the terms refer to whether the price ceiling has an effect on the actual price that buyers pay and sellers receive in an exchange. An effective price ceiling hampers voluntary exchange from negotiating a market price

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