If the price fixed by the market forces are not satisfactory, the government may control the price by increasing or decreasing the price determined by the market. What do you think the objectives of this kind of a price control by government? Discuss any five objectives in detail.
If the price fixed by the market forces are not satisfactory, the government may control the price by increasing or decreasing the price determined by the market. What do you think the objectives of this kind of a price control by government? Discuss any five objectives in detail.
Price of a product is controlled by market forces governing demand and supply. Some times in-spite of the price fixed by the market forces in the market government also puts some price restriction on price - government may increase or decrease or fix the higher ceiling of price to be set in the market.
Government may fix the price of the product or supply in the market - this is done by government in order to achieve some specific objectives.
The mains reason are as below :-
1) Price base line for living : Government may fix the lower base line of price for some products in the market. Here government fix the lower limit of price below which the price of the product can not fall in the market. Because fall in price also means there will be reduction in supply - since price and supply are directly related in an economy. Also if price falls too much that means its associated products price will also fall in the market - leading to a general price drop which is not in favor of the economy - so, government prevent price from falling too much in the economy.
2) Price ceiling for maintaining equilibrium in the economy : Government puts a price ceiling on certain items in the economy so, that their price does not increase over and above certain limit in the economy. Such as items of daily use in the market - government puts a pricing capping on those items so, that their price does not goes over and above certain level and it remains with in the affordable level of the consumers - considering their per head income.
3) To Keep Money Value Constant in the economy : Government may also control the price in the market in order to keep the value of money intact in the economy. Too much rise in price means the money value will reduce in the economy. The purchasing power of the money will decline and its value will be reduced in the market - under such condition people has to pay more money for getting the goods and services and vice versa.
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