Government Intervention in the Market Place
GOVERNMENT INTERVENTION IN THE MARKET PLACE
ECONOMICS 101 ESSAY 2
28TH APRIL 2006
ABSTRACT
The government may choose to set prices different to those set by the markets. Prices are not allowed to drop below a certain minimum. For example, in Agriculture, government may choose to subsidies farmers, set production quotas or offer price supports. Government may decide to set price ceilings or price floors. The government may also choose to increase or decrease taxes on certain commodities. In this essay, we will look at the effects of government intervention from an economic perspective. According to the Financial Mail (2006) In February this year, inflation rate in Zimbabwe reached the highest level in the world an annual 782%. It is estimated that by the end of this month, Zimbabwe 's year-to-year inflation rate will have topped 1 000% this is according to calculations by the regionally represented Imara financial-services group (Mail and Guardian, 2006). As inflation increases to ridiculous rates, the Zimbabwean government is forced to offer some sort of relief for its people. Prices of basic commodities such as food and fuel are rising sharply on an almost day to day occasion while wages have remained fairly the same (Financial mail, 2006). Due to public or rather social concerns, the government has been forced to set price controls for basic commodities such as food, fuel and transport costs.
"A price ceiling is a regulation that makes it illegal to charge a price higher than a specified level" (Parkin et al., 2006:119). The Zimbabwean government has attempted to set a price ceiling for certain commodities i.e. fuel and food. This means that suppliers cannot set prices higher than the stipulated price. For a price ceiling to be effective according to Parkin et al. (2006:119), it has to be set below the equilibrium price; if set above the equilibrium point, it has no effect because market forces are not constrained by the price ceiling the
ECONOMICS 101 ESSAY 2
28TH APRIL 2006
ABSTRACT
The government may choose to set prices different to those set by the markets. Prices are not allowed to drop below a certain minimum. For example, in Agriculture, government may choose to subsidies farmers, set production quotas or offer price supports. Government may decide to set price ceilings or price floors. The government may also choose to increase or decrease taxes on certain commodities. In this essay, we will look at the effects of government intervention from an economic perspective. According to the Financial Mail (2006) In February this year, inflation rate in Zimbabwe reached the highest level in the world an annual 782%. It is estimated that by the end of this month, Zimbabwe 's year-to-year inflation rate will have topped 1 000% this is according to calculations by the regionally represented Imara financial-services group (Mail and Guardian, 2006). As inflation increases to ridiculous rates, the Zimbabwean government is forced to offer some sort of relief for its people. Prices of basic commodities such as food and fuel are rising sharply on an almost day to day occasion while wages have remained fairly the same (Financial mail, 2006). Due to public or rather social concerns, the government has been forced to set price controls for basic commodities such as food, fuel and transport costs.
"A price ceiling is a regulation that makes it illegal to charge a price higher than a specified level" (Parkin et al., 2006:119). The Zimbabwean government has attempted to set a price ceiling for certain commodities i.e. fuel and food. This means that suppliers cannot set prices higher than the stipulated price. For a price ceiling to be effective according to Parkin et al. (2006:119), it has to be set below the equilibrium price; if set above the equilibrium point, it has no effect because market forces are not constrained by the price ceiling the
References: Financial Mail, 2006. Zim inflation flirts with 800%. Financial Mail 10 march 2006 MAKONI, V., 2005 MULEYA, D., 2006 Zimbabwe Inflation set to breach 1000% Business Day 26 A PARKIN, M, POWELL, M and MATTHEWS, K., 2005 SLOMAN, J., 1997. Economics (3e) London: Prentice Hall TAYLOR, A.J., 2006