For And Against The Italian Government Interventing In The Pasta Market To Try To Reduce Pasta Prices

Topics: Supply and demand, Economics, Monopoly Pages: 2 (648 words) Published: April 26, 2015
«For and against the Italian government interventing in the pasta market to try to reduce pasta prices».

First of all, to make it clear for the further writing, monopoly is a market structure dominated by a single seller of a good, and subsidies are the payments by government to producers to encourage production of good and services.

In order to protect the interests of consumers, the government can regulate the monopoly power of the firms in a free market, as this power enables firms to set high prices for the goods and services they are manufacturing. Government intervention can actually lead to lower prices and greater economic efficiency. Perhaps, the Italian Office of Fair Trading could investigate the abuse of monopoly power by the big pasta manufactures and break it up, or using other different methods, force the prices to go down, making it available for the Italians to buy pasta products. So that monopolies can exploit their position and charge high prices, because consumers have no alternatives. This is especially problematic if the product is a basic need, like water. For Italians, pasta is actually a necessity good. However, such monopoly can also generate export revenue for a national economy, so that the government should be careful when intervening in the pasta market in order not to harm itself and not to increase the domestic (government) debts. What is more, to increase consumption and production, the government can offer a subsidy to reduce the price and increase quantity supplied. As the government pays part of the firm’s cost, the production costs for it decrease, and therefore, the supply curve shifts to the right.

In Italy due to the shortage of supply of wheat (because of the global warming and increased demand for bio-fuel), a significant price rise has accured. In this case I think that the government can subsidies not the manufacturers themselves but the farmers, which will allow them to crop...
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