The following is a question from the GMU Microeconomics Ph.D. Comprehensive exam I took last night:
A government is considering imposing a price ceiling on a good that has a supply curve with zero elasticity [perfectly inelastic]. The price ceiling would be binding, so the government-imposed price would be lower than the lassez-faire price. In your two-part answer, explain:
a. What does textbook price theory predict about the implications of a price ceiling?
b. What would a more sophisticated, well-rounded economics, predict about the implications of a price ceiling? Ignore public choice issues.
I particularly liked this question. The difference between a good economist and a bad economist is the ability to see beyond just the seen (in this case, the model) and to see the unseen (in this case, the mix of things that affect people and resources beyond the model). The poor economist (or poor econometrician) looks only at his model and treats it as the Gospel. People will come up with all kinds of models to justify their various pet projects, whether it be tariffs, minimum wage, or what-have-you, and ignore all the economics around them.
Any good discussion of economic phenomena must involve a discussion beyond just the scope of the model and, as in the worlds of the GMU microeconomic committee above, involve “a more sophisticated, well-rounded economics.”