Price Controls in Venezuela
TABLE OF CONTENT
Question
Content
Page(s)
1.a
Effects of government policy that sets price controls on the sale of some goods
1.b
Effects of government policy that subsidises the costs of goods to consumers
2
Evidence of maximum price controls in Venezuela
3
Costs and benefits of government regulation of prices in the short and long run
1. Using a basic demand and supply model, explain the effects of a government policy that:
a) Sets maximum price controls on the sale of some goods Market is defined as a group of buyers and sellers of a certain goods or services. Demand is the willingness and ability to buy goods in a set period of time at a certain price, ceteris paribus. Supply is the willingness and ability to sell goods in a set period of time at a certain price, ceteris paribus. The correlation of price and demand, and price and supply are known as demand relationship and supply relationship, respectively. The relationship between supply and demand resulting in the forces affecting the efficient allocation of resources. There are a few reasons as to why government intervenes in the market of goods and services. Among them is to correct market failure, achieve a more equitable distribution of income and to improve the economical performance. One way for the government to intervene in the market is by implementing a Price Ceiling. Price Ceiling or maximum price is a regulation that prevents the price of a good or service to rise above a certain price level that is set by the government. This regulation has the price level set below that of the equilibrium price level, leading to a shortage of supply and an excess of demand of a good or service occurs (As shown in Figure 1.1). According to Article 2, the price regulations in Venezuela was implemented to prevent food companies from evading the law as well as to reduce the cost of the basic shopping basket of ordinary Venezuelans.
Figure 1.1
By implementing price ceilings, the
Question
Content
Page(s)
1.a
Effects of government policy that sets price controls on the sale of some goods
1.b
Effects of government policy that subsidises the costs of goods to consumers
2
Evidence of maximum price controls in Venezuela
3
Costs and benefits of government regulation of prices in the short and long run
1. Using a basic demand and supply model, explain the effects of a government policy that:
a) Sets maximum price controls on the sale of some goods Market is defined as a group of buyers and sellers of a certain goods or services. Demand is the willingness and ability to buy goods in a set period of time at a certain price, ceteris paribus. Supply is the willingness and ability to sell goods in a set period of time at a certain price, ceteris paribus. The correlation of price and demand, and price and supply are known as demand relationship and supply relationship, respectively. The relationship between supply and demand resulting in the forces affecting the efficient allocation of resources. There are a few reasons as to why government intervenes in the market of goods and services. Among them is to correct market failure, achieve a more equitable distribution of income and to improve the economical performance. One way for the government to intervene in the market is by implementing a Price Ceiling. Price Ceiling or maximum price is a regulation that prevents the price of a good or service to rise above a certain price level that is set by the government. This regulation has the price level set below that of the equilibrium price level, leading to a shortage of supply and an excess of demand of a good or service occurs (As shown in Figure 1.1). According to Article 2, the price regulations in Venezuela was implemented to prevent food companies from evading the law as well as to reduce the cost of the basic shopping basket of ordinary Venezuelans.
Figure 1.1
By implementing price ceilings, the