Price and State Farm

Topics: Price, Economics, Costs Pages: 2 (476 words) Published: May 18, 2013
1. Price Ceilings:
Defenders of Communist economic system may point out that consumers pay lower prices for certain good because the government imposes a limit on what producers may charge. Cite at least two other ways that consumers may be “paying” for these goods. * RENT CONTROL IN NEW YORK CITY: Rent control is a price ceiling on rent. When soldiers returned from World War II and started families (which increased demand for apartments), but stopped receiving military pay, many could not deal with the jumping rent. The government put in price controls, so soldiers and their families could pay the rent and keep their homes. However, this increased the quantity demanded for apartments and lowered the quantity supplied, meaning that available apartments were rapidly taken until none were left for late-comers. Price ceilings create shortages when producers are allowed to abdicate market share or go unsubsidized. * STATE FARM INSURANCE: A February 4, 2009 Wall Street Journal article stated, "Last month State Farm pulled the plug on its 1.2 million homeowner policies in Florida, citing the state's punishing price controls...State Farm's local subsidiary recently requested an increase of 47%, but state regulators refused. State Farm says that since 2000 it has paid $1.21 in claims and expenses for every $1 of premium income received."

3.1 Production opportunity cost:
After reviewing the statement, company managers are concerned about the loss on version Z and are considering ceasing production of that version. Should they do so? Why or why not? In my opinion they should continue the production of Version Z, the corporate overhead is a fix cost fallacy, it means that even if they do not produce anymore Version Z cans, their overhead is not going to be lower than 180,000. On the other hand if they stop the production of version Z cans, they will be losing the opportunity to bring 22.500 to their profit, they will break even (0.00) just with the production...
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