Case Review Of Price Roof WITHIN THE Philippine Economics Essay

Another problem is that high prices may pillow inefficiency. Businesses may feel less need to find better methods of production and to minimize their cost if their costs if their profits are being protected by the high price. Also the high prices may discourage businesses from producing alternative goods which can be in higher demand, but which nevertheless have less (free market) price.

This uncertainty may discourage farmers from making long-term investment ideas. A farmer maybe hesitant to purchase, say, a fresh milking parlour, if in a year or two it might be more profitable too switch to sheep rearing or arable farming. A lack of investment by farmers will certainly reduce the development of efficiency in agriculture.

Over the years, plantation incomes will probably decline in accordance with those in other industries of economy. What is more, farmers have very little market power. Particular problem of farmers is that they have to buy their inputs (tractors, fertilizers, etc) from non-competitive suppliers who fee high prices. Then they often have to sell their produce at very low prices to food processors, packers, vendors and supermarkets. Farmers thus feel squeezed from both directions.

The pressure on plantation incomes may cause unemployment and bankruptcies; smaller farms may be taken over by greater ones; and generally, as the rural inhabitants declines, town life may be threatened-with the break-up of neighborhoods and the closure of institutions, retailers and other amenities.

Competition from abroad

Farming may be threatened by cheap food imports from in foreign countries. This may drive farmers from the business.

Price ceiling

Shortage

Price ceiling is the highest price level the federal government allows prices to rise clear the marketplace in which a condition of scarcity exists. (Note that the best price level here is still lower than the equilibrium price. )

For illustration, if the federal government thinks that individuals need bread to reside in, and that the marketplace price of loaf of bread is too much, they might use a price ceiling. Suppose that the next graph represents the marketplace for breads. At equilibrium, the purchase price will be p*, and the number will be q*.

If the government puts in a cost ceiling, we can see that the quantity demanded will go over the quantity offered, meaning that insufficient loaf of bread will be provided to gratify demand. Such a predicament is called a lack. Because price ceilings are installed in the hobbies of the customers: not having the ability to afford any bakery, or not having enough bread to go round.

The administration may establish maximum prices to prevent them from growing above a certain level. This will normally be achieved for reasons of fairness. In wartime, or times of famine, the government may establish maximum charges for basic goods so that poor people are able to buy them.

The causing shortages, however, create further problems. If the government merely packages prices and does not intervene further, the shortages will lead to the next

Government will encourage resource by giving subsidies or taxes relief to organizations. Then the supply increase and eliminate the lack. Or reduce demand by offering substitute goods.

The government packages minimum prices to prevent them from falling below a certain level. It may do this for various reasons

To protect producer's income. In the event the industry is at the mercy of source fluctuation (e. g. plants, due to the fluctuations in weather) of course, if industry demand is price inelastic, price are likely to fluctuate severely. Minimum prices will prevent the fall in producer's incomes that would come with intervals of low prices.

If markets for agricultural products were clear of government intervention, they would be about as close as you could easily get prefect competition in real life. A couple of thousand of farmers, each insignificantly small relative to the total market. As a result, farmers are price takers.

Government Intervention

Types of federal government intervention you can use to ease the situation analyzed above.

Buffer Stock

Buffer shares to stabilize the prices

Buffer stock includes the government buying food and inserting it to get when harvests are good, and then liberating the food back on to the market when harvests are bad. They are able to thus only be utilized with food that can be stored: i. e. non-perishable foods, such as grains, wines or dairy powder and beef. The thought of buffer stocks and shares is an extremely old way.

What the federal government does is to fix a price. Suppose that is Pg. As of this price demand is Q d. If there are good harvests (Sa1), the government buys in the surplus Qs1-Qs2 from the store to market.

Subsidies

Effect of subsidies on agricultural products if the country is self-sufficient

The government can pay subsidies or grant tax pain relief to farmers to compensate for low market prices. Subsidies can be used to increase farm earnings as well as to stabilize them. The simplest form of subsidy is one known as direct income support or direct help. Here farmers are paid a set sum of money irrespective of result. Given that such subsidies are unrelated to result, they don't provide an incentive to create more.

An substitute system is to pay a subsidy per unit of output. This, of course, will encourage farmers to create more, which will depress the marketplace price. The situation of any agricultural product where in fact the country is self sufficient. With out a subsidy that the marketplace price down to Pm. The size of subsidy that the federal government must pay, therefore, will be Pg- Pm. The total amount of taxpayer's investment property will be the shaded area. The effect of subsidy is to change the effective source curve downwards by the amount of subsidy, to S+ subsidy.

Incidence of Tax

Another manner in which the government can alter the market is through taxes. One particular example is in the tobacco market: if the government would like to discourage the sale and use of tobacco, they would charge tobacco retailers a tax on tobacco products. Generally, sellers complete as a lot of the additional cost on to customers as possible because the sellers don't want to lose any profits, they need to increase their value in order to maintain the same profit percentage, since they was required to pay a supplementary tax when acquiring the products for resale. In such cases, the resource curve will transfer vertically by the precise amount of the taxes.

So, if the federal government charges a $1 taxes on every pack of cigarettes, and the cigarette vendors want to go this duty on the potential buyers, then the resource curve will alter upwards by $1. The net result is that for just about any price, the stores will sell fewer packages of cigarettes, to make up for the excess cost of the taxes. In effect, if consumers want to keep their previous levels of consumption, smoking would now cost $1 more per pack. However, the new equilibrium demonstrates prices will be in between p and (p+1), and the quantity will be significantly less than the initial amount. We can see how this works on the graph above.

Price Control

Price Roof In Philippine

Case Study

In the Philippines the essential necessities are like the rice, corn, bakery, fresh, dried and canned fish and other marine products, fresh pork, beef and poultry meals; fresh eggs, fresh and prepared milk; more fresh vegetables; root crops; coffee; sugar; cooking oil; salt; laundry cleaning soap; detergents; firewood; charcoal; candles; and drugs categorized as essential by the Division of Health of the Philippine. In addition, the Price Function (Republic Work 7581) which is to regulate the purchase price manipulation happens, it is an instrument that is often cited to regulate price. There are three price manipulations

The first is hoarding, it is considered illegal under this rules and and yes it is punishable by imprisonment. Hoarding is when the undue build up by somebody's or combination of people of any basic products beyond his or their normal stock levels or the unjustified taking out any basic need from the route of reproduction, trade, commerce and industry.

Profiteering is the sale or offering on the market of any basic need at a cost grossly more than its value.

Cartel is any blend of a contract between several persons involved in the development, manufacture, processing, store, supply, syndication, marketing, sales or disposition of any basic necessity made to artificially to increase or to manipulate the purchase price.

Causes of short-term price fluctuations-Rice

A field is not like a machine. It cannot produce a specifically predictable amount of end result in line with the inputs given in. The harvest is affected by a number of unpredictable factors such as the weather, pest and diseases. Fluctuating harvests mean that farmer's earnings will fluctuate.

Shortage

Maximum Price: Price ceiling

The shortage of rice in Philippines will create further problems. If the federal government merely sets the purchase price and will not intervene the result will be the following

The allocation on the 'first come, first serve' basis. This is will have the effect of queues develop or implementing holding out list.

The organizations that produce rice will determine which customers should be allowed to choose the rice. For instance, giving personal preferences to regular customers.

Therefore, the perfect solution is of this result is the federal government will have to adopt something of rationing. People could be released with set amount of coupons for every item rationed.

Effect of price control on black-markets prices.

A problem with maximum prices is likely to be is the black market, where customers, unable to buy enough rice in legal market, may well prepared to pay very high prices: prices above P e.

To minimize the kind of problems that the government will have by reducing the shortage of rice by encouraging resource: by attracting on stores, by direct government creation, or by giving subsidies or duty relief to organizations that produce rice. Otherwise, it may try to reduce demand: by the production of more substitute goods.

Price Ceiling in the United States

CASE STUDY

Rent Control Issues

There are numerous cities that have rent control. This means that the maximum hire that may be billed is by arranging a government agency. But the lease in New York city is usually allowed to grow a certain percent each year to maintain with the inflation. However, the rent is leaner than P e.

Shortage

Maximum Price: Price ceiling

Therefore, shortages are usually associated with this price roof. Regarding apartments, there are perhaps hundreds of men and women looking for every apartment that is vacant. Rent controls were likely to protect those who were renting when the demand for rentals exceeded the resource, and landlords were getting ready to "gouge" their tenants.

PROBLEMS

Giving tastes to certain customers:

The landlords often lease to preferred renters. They are apt to be maried people, probably over 30, and without children or household pets. If the rent cannot be brought up on the apartment, there is certainly nothing protecting against the landlord from charging for the parking space, charging for use of the elevator, charging for gardening and cleaning services, forcing the tenants to cover electricity and normal water, etc. In New York, a rent-controlled apartment near Central Area might lease for $300 to $400 per month; in a free of charge market, the rent would probably be $2, 000 monthly. To enter, one needs the main element. This has been known to cost $1, 000. This is not a refundable deposit; this is a fee to really have the key. It really is obviously worthwhile to have the ability to rent the apartment for $300 to $400 per month.

SOLUTION:

Price ceilings provide a gain for customers and a damage for retailers.

Effect of price control on black-markets prices.

Sellers would like to avoid the loss if they can. One way to take action is named a dark-colored market. In this case, the vendors illegally raise the price and hope to get away with it. Shortages build a rationing problem -somehow, it must be established who will get the product and who'll not. There are numerous ways to resolve the shortage problem. The most frequent way is first-come, first-served. Shortages are typically associated with long lines. Regarding flats, there are perhaps hundreds of men and women looking for each and every apartment that is vacant.

The allocation over a 'first come, first provide' basis. This is will have the effect of queues develop or adopting waiting around list.

Giving personal preferences to certain types of customers to rent the apartment.

Therefore, the answer of this impact is the government will have to adopt something of rationing. People could be released with set volume of coupons for every item rationed.

Where necessary, government can increase rentals subsidies to low-income tenants or a change in the taxes plan could be enacted.

The Price Floor in Brazil

Case Study

Sugar

Surplus

Minimum Price: Price floor

PROBLEM

The production of sugarcane to be able to produce sugars. There is always fluctuation in price for in glucose in Brazil. Therefore, a field is nothing like a machine. It cannot create a accurately predictable amount output of sugarcane to produce sweets. The harvest of sugarcane is affected by a number of unstable factors such as the weather, pest and diseases. Fluctuating harvests imply that farmer's incomes will fluctuate. The federal government of Brazil packages the least price to avoid them from slipping below a certain level. It could do this various reasons

To protect companies' income of sugars firms.

To build a surplus which is often stored for future shortage of glucose.

SOLUTION

The government use various methods to solve the surpluses of sweets

The administration will choose the surplus glucose and store it, kill it or sell it in foreign countries in other marketplaces.

Supply of sugarcane will be artificially reduced by restricting providers of sugar to certain quotas.

The demand of glucose could be elevated by advertising, and finding substitute uses for the goods, or by reducing the consumption of the substitute goods of sugar.

Other aftereffect of price floor is the fact that companies with surpluses on the hands may try to evade the price control and cut their prices. Another impact is that high prices may pillow inefficiency. Sugar firms may feel less need to find better methods of development and to minimize their cost if their costs if their income are being secured by the high price. Also the high prices may discourage businesses from producing choice goods that happen to be in higher demand, but which nevertheless have a lower (free market) price.

Price Floor in Republic of China

Case Study

Airline Tickets

The public reading on the price floor design for Chinese language airlines can provide as a good litmus test of the aviation administration's dedication to market guidelines. However, the price floor that the authorities have already founded in the draft plan suggests that trust in market competition.

Surplus

Minimum Price: Price floor

PROBLEMS

The price floor ability to hear has been rescheduled for today because of the outbreak of severe serious respiratory symptoms (SARS) in Apr. The effects of the potentially fatal epidemic on the aviation sector understandably aroused much open public sympathy in the past two months. Luckily, the country's primary triumph over the SARS outbreak in overdue June has allowed staff to the ability to hear to focus again on the requirements of the price-reform plan.

SOLUTION

Fortunately, the country's first triumph over the SARS outbreak in later June has allowed staff to the reading to concentrate again on the essentials of the price-reform structure. In their draft plan, the aviation regulators have squarely pointed out three existing faults in the sector -- an inflexible charges system that does not meet market demand, vicious price wars among Chinese airlines and irregular firm business.

However, the solution made by those who had written the draft is, sadly, so misguided that the progress of market-oriented aviation reform could be postponed, if not demolished. By restricting the flight companies' ability to raise prices at will, the specialists are commendably defending the pursuits of consumers. According to the draft plan, a maximum discount of 40 percent and a maximum price increase of 25 percent will be enforced on the essential price of 0. 75 yuan (9 US cents) per person per kilometer.

The government will use various solutions to solve the surpluses of air tickets

The demand of air ticket could be elevated by advertising, and finding alternate ways to tackle the situation, or by minimizing airline happen to be overseas and local.

Other aftereffect of price floor is that organizations with surpluses on their hands may try to evade the purchase price control and minimize their prices.

Another effect is the fact high prices may cushioning inefficiency. Airline organizations may feel less need to find more efficient methods of creation and to cut their cost if their costs if their earnings are being guarded by the high price. Also the high prices may discourage organizations from producing substitute goods which are in higher demand, but which nevertheless have a lower price.

CONCLUSION

There are several ways in which the government intervenes in the procedure of markets. It can fix prices, taxes or subsidize products, regulate creation, or produce goods immediately itself. The federal government may fix bare minimum or maximum prices. If a minimum price is defined above the equilibrium, surplus will effect. If a maximum price is set below the equilibrium price, a scarcity will direct result.

Minimum prices are established as method of safeguarding the incomes of suppliers or setting up a surplus for storage space in case there is future decrease in supply. If the federal government is not intentionally trying to create a surplus, it must determine what to with it.

Maximum prices are establish as means of keeping prices down for the client. The resulting lack will cause queues, waiting lists or the restriction of sales by firms to preferred customers. Alternatively, the federal government could introduce something of rationing. With maximum prices, black markets will probably arise. This is where goods can be purchased illegally above the maximum prices.

Generally price adjustments distort the working of the marketplace and business lead to over source or shortage. They are able to exacerbate problems somewhat than solve them. Nevertheless there could be occasions when price controls can help for example, with highly volatile agricultural prices.

Despite the actual fact that free market is agricultural produce would be highly competitive, there exists larges scale federal treatment in agriculture throughout the world. The goals of involvement include stopping or minimizing the fluctuations, stimulating greater countrywide self-sufficiency, increasing plantation incomes, encouraging plantation investment, and guarding traditional rural means of life and the rural environment generally. Besides that, flight tickets and also apartment renting are intervene by the government including preventing fluctuation in the pricing of flight tickets and encouraging organizations to be more do it yourself sufficient.

Price fluctuations will be the results of fluctuating resource coupled with price-elastic demand. The supply fluctuations are due to the fluctuation in the harvest. The demand for resource is generally income inelastic and thus grows only slowly overtime. Resource, on the other palm, has generally grown up rapidly therefore of new technology and new plantation methods. This sets downward pressure on price- a problem compounded for farmers by the purchase price inelasticity of demand for food.

Government involvement can be in the proper execution of buffer stock, subsidies, price support, quotas, and other ways of reducing supply, and structural guidelines. Buffer stock can be used to stabilize price. They can not be utilized to increase plantation incomes over time. Subsidies increase plantation incomes but will lower consumer prices to the globe price level (or to the main point where the marketplace clears).

DEPARTMENT OF AGRICULTURE

(A) Basic Necessities

rice

corn

cooking food oil

fresh, dried seafood and other sea products

fresh eggs

fresh pork, beef and poultry meat

fresh milk

fresh vegetables

main crops

sugar

(B) Primary Commodities

fresh fruits

dried pork

dried beef and poultry meat

fresh milk products not dropping under basic necessities

onions, garlic

fertilizer (chemical substance and organic), pesticides, herbicides

poultry, swine and cattle feeds

veterinary products for poultry, swine and cattle

DEPARTMENT OF HEALTH

(A) Basic Necessities

drugs labeled as essential by the DOH

(B) Leading Commodities

drugs not grouped as essential by the DOH

DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES

(A) Basic Necessities

fire

charcoal

(B) Prime Commodites

Plywood

Plyboard

Nipa Shingles

Sawali

DEPARTMENT OF TRADE & INDUSTRY

(A) Basic Necessities

canned fish and other sea products

processed milk

coffee

laundry soap

detergent

candles

bread

salt

(B) Best Commodities

flour

refined and canned pork

refined and canned beef and poultry meat

noodles

vinegar, patis, soy sauce

toilet soap

paper, college supplies

concrete, clinker, G. I. Sheets

hollow blocks

engineering nails

batteries, electronic materials, light bulbs

Penalty for Violation of Price Ceilings

Any person who violates Section 6 or 7 of this Act shall suffer the penalty of imprisonment for a period of not less than one (1) 12 months nor more than ten (10) years, or an excellent of no less than Five thousand pesos (P5, 000) nor more than One million pesos (1, 000, 000), or both, at the

discretion of the court.

Mandated Price Ceiling

Mandated Price Roof shall make reference to the price enforced on any basic need or prime product by the Chief executive upon suggestion of the applying agency or the purchase price Coordinating Council if any of the pursuing conditions so warrant;

Impending lifetime or effects of a calamity

Threat, presence or effect of an emergency

Prevalence of popular acts of illegal manipulation

Impendency, presence or effect of any event that cause man-made and unreasonable upsurge in prices of said commodities.

Automatic Price Control"

Automatic Price Control shall make reference to a predicament where prices of basic needs which, unless in any other case declared by the President, are automatically iced at prevailing prices in areas which were declared under the following conditions

state of disaster

state of emergency

state of rebellion

state of war

privilege of writ of habeas corpus suspended The term disaster or calamity shall include those brought about by natural or synthetic cause, whether local or foreign.

Panic buying

Panic buying is the abnormal happening where consumers buy basic essentials and prime goods grossly in excess of their normal need leading to undue lack of such goods to the prejudice of less privileged consumers.

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