12 Price Control Examples
There are times when as a result of monopolistic practices, the prices of some products are artificially raised, so the solution is to impose laws to prevent this situation by the State, or to import to lower the price or allowing new companies to enter to compete in the market.
The other solution on the part of the State is: price control.
- The State issues a law to fix the price of milk and bread in order to benefit the poor.
- The Organization of Petroleum Exporting Countries (OPEC) decides to raise the price of crude oil, this decision causes fuel producers (the companies that buy crude oil to transform it into gasoline) to decide to buy less crude oil, which causes the supply of gasoline to decrease and long lines to form at gas stations due to shortages.
- The State decides to set a maximum price of 2 dollars for hotdogs, and the real price in the market is $1 dollar, so the State's regulation has no effect on buyers and sellers.
- The State makes the decision to establish a maximum price of $5 pesos for the sale of sandwiches, and the normal price was $9 pesos, so now there are fewer sellers of sandwiches because at that price of $5 pesos it is no longer profitable for most of them, which causes a shortage of sandwiches in the country.
- The Consumer Defense Institute, with the help of some influential politicians, got the State to pass a law to set a maximum price of $15 pesos per liter of gasoline, which previously was $20.7 pesos per liter. This made consumers willing to buy more gasoline than usual, but gas station owners were not willing to sell at that price because it would reduce their profits, so they closed more than half of their gas stations to restrict sales. In the end this caused long lines to stock up on gasoline, which was used to pressure the State to release the price.
- The State issued a law to lower the rental price of apartments in the capital to a maximum price of 16,000 pesos so that people of limited means could have access to rental housing. This decision was not well received by the owners of apartments, so the vast majority opted not to rent and a good part continued renting, but they did not offer to finance improvement works because the price did not allow them to do so.
Currently the minimum wage is 1,000 euros, but the State has a law in the pipeline to raise it to 1,200 euros in order to increase the income of workers who earn very little. This agitates most private employers, so those recent university graduates who were willing to work for a lower wage in order to gain work experience will no longer be able to do so, because employers are not willing to pay inexperienced labor.
- Currently the minimum wage is 1,000 euros, but the State has a law in the pipeline to raise it to 1,200 euros in order to increase the income of workers who earn very little. This agitates most private employers, so those recent university graduates who were willing to work for a lower wage in order to gain work experience will no longer be able to do so, because employers are not willing to pay inexperienced labor.
- A new law in which the State reduced the price of "Tin" by 60%, caused a great shortage of this mineral in the country because the companies that distributed it desisted from commercializing tin due to the low income it generated from the price regulation, and thus doubled the price of tin sales on the black market.
- The State, in response to several complaints from consumer movements and groups, issued a legal provision imposing a 25% reduction in the sale price of Uchuva (a fruit similar to tomato). This caused the two companies that harvested and distributed 70% of Uchuva in the country to close operations because they would not be able to cover their costs in the medium term. As a result, more than 1,500 people were left without jobs.
- Six months ago, a law was passed to control the price of rural transportation, which caused many bus owners to turn to private tours and trips. The few that remained began to provide poor service and the accident rate due to mechanical breakdowns continues to increase due to the low profit margin in this sector.
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