Question

What are efficiency and name some products in which the government allows firm to set price without interference?

Answer 1

There are certain products under for which there is no interference by the government to set prices. This is because the government wants that firm to produce more and more of that product because the government might lack adequate expertise or even technology to develop the same type of product. It might also be the case that the government might want to promote the usage of that product in the economy. For example, all the products sold in Special Economic Zones(particularly in India) are devoid of any taxes, and thus these products can be sold by the producer on his discretion. However, it should also be kept in mind that even though there isn't any restriction on price of the product by the government, the competition in the market will force the seller to sell his product at a competitive price. For example, the government might not have any restriction on the Sportswear by Reebok and Reebok can sell that product at any price that he wants. However, if Adidas comes up with a similar product but at a cheaper price, then Reebok will not be able to sell its products because the customers can buy the Adidas product but at a cheaper price.