Zimbabwen police warns dubious traders Harere . The zimbabwen police warned last Monday unscrupulous traders selling commodities at above the government stipulated prices that they risk being arrested if cought doing the unlawful act
Police spokesperson inspector, Cecilia chutu , said that police wound not hesitant to arrest any retailers caught flouting the gazzeted prices
The warning comes in the work of unjustified price increase of meali meal in the in the past two weeks by millers without the approval of the government. You are required to :
Explain, with the aid of a diagram, the effects of this form of government intervention on the price mechanism
Unfortunately, I cannot create or provide diagrams as a text-based AI. However, I can explain the effects of this form of government intervention on the price mechanism.
When the government sets stipulated prices for certain commodities, it is essentially implementing a price ceiling. A price ceiling is a maximum price that can be charged for a product or service. In this case, the government is trying to prevent unscrupulous traders from selling goods at prices higher than what the government has deemed fair.
The effects of this government intervention on the price mechanism can be seen as follows:
1. Shortage: If the government-set stipulated price is below the market equilibrium price, it creates a situation where demand exceeds supply. At the government-mandated price, consumers demand more of the good than producers are willing to supply. As a result, a shortage occurs in the market.
2. Black Market: Because traders cannot legally sell at prices higher than the government-stipulated prices, some individuals may turn to the black market to buy or sell the goods at the market equilibrium price. The black market refers to illegal transactions that occur outside the reach of government regulations, such as selling goods above the stipulated prices.
3. Reduced Quality or Supply: When prices are artificially capped, producers may be disincentivized to supply the goods at the lower prices. This can lead to a decline in quality or a decrease in supply as producers seek alternative markets where they can sell at higher prices.
4. Distorted Incentives: When the government intervenes in the price mechanism, it disrupts the normal market forces of supply and demand. This can create distorted incentives for both producers and consumers. Producers may be discouraged from investing in production if they cannot sell at profitable prices, while consumers may face limited choices and lower quality goods due to the supply constraints.
It's important to note that while government intervention aims to protect consumers from unfair prices, it can also have unintended consequences. These consequences can include shortages, black market activities, reduced quality or supply, and distorted incentives. The long-term effectiveness of government intervention in controlling prices depends on various factors, including the ability of the government to regulate and enforce these measures effectively.