Question

Explain why it is important that prices are flexible in our economy? What are the implications if the government started to control prices for products, how would this influence buying?

Answer 1

In a market economy,prices are used to distribute goods and resources in the whole economy. It also provide a standard of measure of value in the world.Prices acts as signal for the producers and to the consumers also,acoording to which producers make changes in the production and so the consumers make chenges,as these two are very important factors of the economy.Price includes the cost of product and sellers margin of profit.Price is also determined by certain forces in the market in which demand is the most influencing factor.

Flexible Pricing

As the name suggest, flexible price means the price which is not fixed or rigid or in other words we can say it is not sticky.When prices are flexible the can be increased to solve problems of surplus or problem of shortages.It reduces quantity demand and the people who have enough money,they can purchase it.It is a business strategy used by the producers in which a products final price is open for negotiation. We can understand it in this way that producers and customers can try to negotiate the price,either the price can be pushed up or knocked down. Flexible pricing is applicable on goods as well as on services.

Flexible pricing (example)

A bioutique Designer,charges customer according to the customization of the product on the customers request,but the designer do keep in mind what the customer can afford, and if the price is fixed then there will be no chance of negotiation,and if the customer cannot go with the price he is left with the only option,not purchasing the product. From this example we can understand that flexibility in price is how important as it is related with increase in sale as this leads to more demand and more production.It is a pricing strategy in which the final price at which the product or service being sold is open for negotiation between buyers and sellers.

Consequences, if government conrols pricing

Prices controls are government mandated minimum or maximum prices set for specified goods,they are usually implemented as a means of direct economic intervention to manage the affordability of certain goods.Government implements price control on essential items,such as edible products,food products,energy products. government intervene the price only to manage the affordability of goods.

Well price controls are only effective on an extremely short term basis,and in the long term it can lead to problem s such as rationing,shortages,low product quality and black marketing that arise the to the problem of supply of price controlled goods through unofficial channels.If a governmnet contols prices may be enacted with the best intentions for the availability if product it wont sustain to long term, it is only benefecial in short term.Most attempt to to control prices often struggles to overcome the economic forces of supply and demand.When prices are set in a free market,it shifts to maintain the balance between supply and demand.Whwn a government imposes price control the consequences can create excess demand in in the case of price ceiling or excess supply in case of price floors.

Goverment intervention in price control not always criticised byt sometimes it guarantees the supply of essential goods which according to government every consumer should consume,it also help domestic firms of the economy to open up in competitive market and international market,it is known as protectionism.

In the end we can say that flexibility in price is important for any economy as it opens up chances of negotiation,which leads the consumers to purchase morewhich contributes the economy ia all ways an f ther is intervention of government, if it controls the price then it is beneficialbut only for short term