Government Intervention In The Market Place

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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 ...

... middle of paper ...'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.


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
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