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Markets Organize Economic Activity - Essay Example

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The answer is no. In most cases, this so-called price control set by the government often lead to shortages. Lets take a clear example: Government in developing country has set a price ceiling…
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Markets Organize Economic Activity
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Markets Organize Economic Activity

Download file to see previous pages... Firstly, a price ceiling happens when prices of commodities and other services are held below the equilibrium, in connection, these prices are not allowed to rise for the benefit of the buyers and consumers. When sellers can possibly add few cents to the current price of bread while maintaining its saleability, the government would prohibit them to do so. Anyway, there are few tactics sellers have used to make money while price has been frozen to a certain level. Some of these tactics are baking low quality breads by not following the exact measurements of several ingredients. But, consumers cannot easily spot these changes. What they have in mind is the “amount” they will exchange for that commodity. The sellers cost-cutting method can be hidden by the low-priced bread. Nevertheless, even there would cost-cutting measures, the direct result of price ceiling is shortages. When everyone can afford to buy bread, there would occur a shortage of bread supply in the market. There are also instances that richer consumers would buy in excess of their regular consumptions.
Secondly, lets talk about the obvious connection of the shortage of bread production to long lines. When prices of commodities are set in a price level below the equilibrium, there are more consumers who are so eager to buy bread. Even its obvious that they have to spend time to wait there turns, they are always willing to fall in line. There are various factors why many people are willing to get starve in the corner standing in the queue, even they have the option to eat in the nearby fast foods where they can be served in less than 10 minutes – they want to save every cents they can because of the inflation. While almost all the prices of products and basic commodities went higher each year, most workers salaries remain the same. There are few announcement of wage increase, however, it cannot cover up the cost of the most upward movements of prices of the major daily needs. Its ...Download file to see next pagesRead More
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