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What actions might be taken by the government of (one country) to reduce and limit price fluctuations of coffee - Essay Example

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Coffee is a primary product and markets of primary products behave differently than those in the manufacturing sector and the service sector (Anon, 2015). Ideally a country’s government wishes to have stability in prices for all the products, whether primary, secondary or…
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What actions might be taken by the government of (one country) to reduce and limit price fluctuations of coffee
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Extract of sample "What actions might be taken by the government of (one country) to reduce and limit price fluctuations of coffee"

Download file to see previous pages If the price of any product fluctuates highly then the government can limit the fluctuation through minimum and maximum prices, also referred to as price flooring and price ceiling respectively (Dineshbakshi, 2015).
The government can set a maximum price which must be below the equilibrium price of coffee in order to be effective and disallow trading above that price level (Dineshbakshi, 2015). As, the price is below the equilibrium it will lead to excess demand and eventually lead to a shortage. In such cases there will also be some consumers who will be willing to buy coffee at a higher price than the price set by the government and this will lead to black markets being created (Dineshbakshi, 2015). The situation cannot be left this way and let the economic situation of the country worsen, thus further actions are required by the government (Dineshbakshi, 2015). Government may take total control of supplying these goods or even producing goods itself (Dineshbakshi, 2015). But the problem may remain as people may not sell all their stock of coffee and black markets may still remain. On the other hand if the government takes control of the production in its hand, it will be accompanied with may management and other technical issues. The government can also help in eliminating this black market and the shortage in the market by supplying coffee from its own stocks (Dineshbakshi, 2015). All these steps by the government will lead to the supply curve shifting rightwards, achieving equilibrium and eliminating shortage (Dineshbakshi, 2015).
On the other hand, if the government sets a minimum price which must be above the equilibrium price in order to be effective and ban trading lower than that price level; it may also help in reducing price fluctuations (Dineshbakshi, 2015). As the price is set above the equilibrium price it will lead to higher supply and lower demand leading to a surplus of coffee in the market (Dineshbakshi, 2015). Surplus can also be catered ...Download file to see next pagesRead More
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