THE ROLE OF GOVERNMENT IN PRICE STABILITY AND CONTROL

[image source]

The major interest of a business man is to make profit, so he tries as much as he can to see that he minimizes his expenses and maximize his profit at all cost, a business minded person with the sole aim of making profit will not mind to have a return of 1000% if it deems possible. This is why the government deem it necessary to control prices of goods and services produced and marketed in an economy and even the world at large.

Price control simply refer to how the government of an economy make efforts to impose restrictions on how high or how low prices of goods and services in a society are allowing to be. This act is majorly to control inflation by influence the rate at which prices increases, stabilize prices and to ensure that these goods and services are affordable for the people they are serving as a government and also to prevent the consumers from being exploited by the greed of the producer. In economics, prices are normally fixed by demand and supply this is called price mechanism in economics.

The price at which a producer of a good or service is willing to supply his or her goods to the market and the price at which the consumer is willing to offer for those goods at the market. When prices are high, the demand of a normal good is usually low, the prices of luxury and essential goods are usually not affected by the demand and supply of these goods and services, high prices also bring about high supply of a normal goods and services.

Having to control or regulate prices of goods and services by the government of a society has its advantages as well as it disadvantages, the advantages may include; price stability, controlled inflation, affordability of essential goods and services by the average citizens, avoid exploitation of the populace, protects small businesses by avoiding price fluctuations which could drive them out of the market and will also protect their profitability.

The disadvantages may include; price regulation may discourage produces of goods and services from production, goods that their prices are fixed below the equilibrium prices (Equilibrium price is the price in which buyers are willing to sell and sellers are willing to buy, it is where the buyer and the seller are in agreement in price) may lead to shortages of those goods since the producers wont be willing to produce more at the price, goods that falls above the equilibrium price may also result to surplus, this is a situation where the producers are willing to produce more whereas the buyers are not in agreement with the price, as such, the consumers may consume less of those goods, leading to having surplus of the goods with less or no purchase.

Situations like this may require the government to provide subsidies for such goods and services. In most cases where businesses are allowed to fix prices, they tend to exploit the consumers, regulation of prices by the government should be in terms of controlling or reducing exploitation of the populace by any greedy producer or producers in the market, price subsidies should be introduced in some cases by the government, which will help influence the price and make it fair for both the producer and the consumer of such goods and services. Thank you for reading.

My name is @rishagamo, and this is my response to the Hive Learners weekly Featured Content Week 188 Episode 01: “PRICE RANGE”.