Price Ceilings and Venezuela
Context for Use
Price ceilings are a basic introductory economic concept. It is important for students to understand the technical analysis of price ceilings prior to attempting to understand the social and cultural ramifications.
The students will examine the impact of price ceilings placed on agricultural goods in the country of Venezuela. Students will consider the complex relationship between a government's desire to provide affordable food for their citizens and the consequences of disincentivizing producers
Expected Student Learning Outcomes
In this exercise students will be prompted to analyze the consequences of the government setting a price ceiling
Information Given to Students
Reading of, "Why are Venezuelans Starving?"
In the podcast "Why Are Venezuelans Starving," we saw a number of familiar economic concepts playing out. In an effort to make food more affordable for Venezuelans, the story began with President of Venezuela, Hugo Chávez, placing price ceilings on various agricultural products in both wholesale and retail markets, such as sugar and milk. It is the responsibility of government leaders to promote the well-being of their constituents. However, this policy did not benefit the Venezuelan people. You are the economist charged with examining why these price ceilings affected the entire country the way they did (based on the information presented in the podcast). Which of the following do you believe is most important to understand what transpired?
A. The farmers of Venezuela did not use their land resources correctly.
B. Setting the price below equilibrium meant people wanted to buy more food.
C. Setting the price below equilibrium disincentivized farmers from producing.
D. Producers will only produce if there is a high level of economic freedom.
Note: Every student must include the appropriate supply-demand analysis of a price ceiling in their notes for this exercise! (Some reporters will be called upon to explain the technical analysis of a price ceiling to the class.)
Teaching Notes and Tips
- Ask student reporters (randomly selected after teams have made their choice) to defend their reasoning
- Allow students to debate and discuss their choices and logic. In an introductory class having groups graph the price ceiling and its impact on equilibrium price and quantity can assist in guiding to the correct answer.
- This activity has a way of making students very uncomfortable. They are fine discussing price ceilings in a theoretical arena, but the podcast makes it very present for them, especially if you address current news. The reality that people are facing potential starvation due to government decisions can create some very good discussion.
- In closing, there should be a strong understanding of why price ceilings are utilized by the government and why in this situation it has proved so dire for the population of an entire country