Government Intervention in the Market Place
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 ...
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...country's fortunes. As we have noted in this essay and as outlined by Sloman (1997; 82) maximum prices reduce the quantity produced of an already scarce commodity. Basic commodities such as food and fuel are already scarce in Zimbabwe therefore setting price controls will create a further shortage and this is the problem Zimbabwe experiences even today.
LIST OF REFERENCES
Financial Mail, 2006. Zim inflation flirts with 800%. Financial Mail 10 march 2006
MAKONI, V., 2005. Fuel prices worsen workers plight. The Zimbabwean 8 July
MULEYA, D., 2006 Zimbabwe Inflation set to breach 1000% Business Day 26 A
PARKIN, M, POWELL, M and MATTHEWS, K., 2005. Economics (6e) Harlow England: Addison- Wesley.
SLOMAN, J., 1997. Economics (3e) London: Prentice Hall
TAYLOR, A.J., 2006. Desperate measures for Zim. Financial Mail 24 April
Desperate measures for Zim
government to set the minimum price and amount sold of a good at the market.
1970s and 80s when they realized that the New Deal ideas that were passed in an
...Generally, price regulation is most operative in a market with ample natural fences to competition, a few homogenous products, few providers to be monitored, and a single measurable objective. Such circumstances could not be more different than those prevailing in the health care sector.
Zimbabwe is suffering from high inflation and unemployment. There economy has a daily inflation rate that climbed as high as ninety eight percent doubling almost every twenty four hours.
Price gouging is increasing the price of a product during crisis or disaster. The price is increased due to temporal increase in demand while supply remains constrained. In many jurisdictions, price gauging is widely considered as immoral and is illegal. However, from a market point of view, price gouging is a correct outcome of an efficient market.
Dr. Noah Zerbe is a professor and chair of the department of politics at Humboldt State University in California and someone who has spent time in both South Africa and Zimbabwe. Dr. Zerbe goes in depth into the factors that surrounded the 2002 famine in Africa, where 14 million Africans were on the brink of starvation. The Malawi president, just a season before the famine, sold off all of Mal...
The Zimbabwean economy is currently in a very poor state with half the population unemployed and the value of a Zimbabwean dollar has declined. The main reasons the for the decline is the problems in the agricultural sector caused by land distribution, many droughts, and the mass infections of HIV/AIDS in the workforce (iExplore). The failed economy also led to a failed education system. Many teachers have quit their jobs and students do not have proper school supplies.
This view implies that governments intervene for many reasons, including the redistributional and stablisation functions. While market failure is one reason for intervention, other considerations, including questions of equity and social justice determined the nature and the extent of government intervention. This point was expanded upon by Groenewegen (1990,2) who argued that the extent of market intervention in the supply, distribution and redistibution of goods and services are not dictated by purly political and ideological considerations, other considerations may play a role including the failure of the market in certain instances to ensure efficient, equiable allocation of resources.
The main idea of externalities in economics refers to the price or advantage that affects a party, organization or an individual who are not directly involved in making use of the price or obtaining the advantages associated with them. With the help of various factors combined there are many deviations in certain economic policies that help address the issue of externalities on the whole. Both negative and positive externalities impact the society in their own way. In economics both the consumption and the production aspects for any factors are essential and thus have to be taken into account. However with the help of various fiscal, monetary and federal policies like subsidy and taxes the government plans to address the important issues of
Ampim, Manu Prof. “Great Zimbabwe: A History Almost Forgotten.” Manuampim.com. n.p. May 2004. Web. 7 Mar. 2014. http://www.manuampim.com/ZIMBABWE.html.
A price floor is the legal minimum price at which a product can be sold in the market. The government may interfere only if it feels it is helping part of the society from harm. In this case, the government aims at helping the dairy farmers by setting up a price floor on dairy products as the production costs for them exceeds the revenue the producers receive. The government sets the price floor only when it feels the market price of the particular product is too low. The price floor aims to protect the sellers from a price that is too low to cover costs and helps the seller stay in business. The typical types of businesses that warrant such type of government help are the agriculture and food industry.
Zimbabwe is one of those nations. Over the years many nations have withdrawn their aid from Zimbabwe. Much conflict has arisen between those who send foreign aid and those who believe that the assistance does nothing but further social divide and corruption. The longer conflict lasts in the African nations, the more inclined those who send aid financially are to cease assisting as conditions worsen. The decrease in funding, along with various other factors, has played into Zimbabwe’s recent economic crisis. Hyperinflation has plagued the African state for the last few years, a result of “unaccounted-for expenditures of the Second Congo War and… inflationary policies of the reserve bank” (Noko 346). Dollarization functioned as a highly effective solution to the issues posed in Zimbabwe. Although Zimbabwe is geographically closer to South Africa, the decision was made to use US currency as the new official legal tender rather than the rand. Thus, the “monetary policy… of the US” (Noko 349) became that of Zimbabwe. However, unlike Panama and El Salvador, officials in Zimbabwe did not encourage the phasing out of other nations currency. The circulation of money from other nations allowed a safe guard against any negative effects that might occur in results of the adoption of the US greenback. Though dollarization has brought about a few
Meredith, Martin. Mugabe: power, plunder, and the struggle for Zimbabwe. New York: Public Affairs, 2007. Print.
For commodity price, the demand and supply are directly contributing to the price volatility. The changes in interest rates and exchange rates are significant influence for commodity output and it also has impact on the commodity prices (Dornbusch 1976). For example, based on the equation of AD=C+I+G+NX. If the government expenditure increases, it will tend to
In every economy, there are 4 main and 4 additional objectives of government macroeconomics objectives. We can point out that the objectives have their own conflicts which difficult to carry it out at the same time between government macroeconomic objectives. Therefore, government use different policies to minimize the conflict.