Question

Due to the current circumstances (Covid-19), what are goods or services for which the government should create a price floor/price ceiling?

Answer 1

The current conditions in the global economy have had adverse effects and continue to do so.

With major industries being hit hard, there are certain industries that are booming in the current times. These industries include most of the essential services, like food, vegetables, sanitizers, testing centres, cleaning supplies etc. The demand for them have risen with the worsening of the pandemic as countries still remain in major lockdowns. This is a great opportunity for manufacturers to overcharge people for the product since the demand is higher than the supply.

Government needs to set price floor (lowest/minimum prices) and price ceilings (maximum price) for certain product such that both parties, consumer’s and producer’s needs are meet.       

These product and services include (price Ceiling)

1. Medical tests related to Covid-19 in private testing centres.

2. Food essentials like pulses, grains, oils, salt etc

3. Milk and dairy products.

4. Vegetables and fruits.

5. Sanitizers, masks, gloves.

6. Dry food items like snacks, biscuits, etc

7. Baby need items like milk formula, baby food, diapers.

8. Commonly used medicines for common cold and flu.

These items are necessary for survival in the times. Since a number of countries import a lot of these products from different countries, the local supply is limited. Since trade is shut off due to the virus, the demand for the product has increased in general as people have begun hoarding and the local supply is less. If prices are kept unchecked, chances are they will be over priced and unaffordable.

Price floor refers to the lowest price that can be charged.

Setting a price floor is important for products and services are:

1. Certain vegetables or perishable items that are not demanded by many people in the economy like regional vegetables or fruits.

2. Minimum wage rates.

3. Hourly rates for services like plumbers, carpenters, etc.

These floor prices are important so that people involved in these professions are not exploited. Since people will put off their work unless necessary in order to divert funds to important and essential products, people may take up any job available at a lower cost to earn something against nothing.

Certain foods that are not demanded may be traded at a lower than production cost since the harvest is ready but there is not much of a demand.

With increasing unemployemnt, certain businesses can take advantage and hire people at wages lower than what they were before.