Zim police warns dubious traders in Harare. The Zimbabwean police warned last Monday unscrupulous traders selling commodities above the government stipulated prices that they risked being arrested if caught.
Police spokesperson inspector, Cecilia churu, said that police would not hesitate to arrest any retailer caught floating the gazetted price.
The warning comes in the wake of un justified price increase of mealie meal in the past two weeks by millers without the approval of the government.
Zambia daily mail,
24 July,2003.
You are required to:
Explain with the aid of a diagram, the effect of this form of government interrelation on the price mechanism.
Unfortunately, as an AI text-based model, I am unable to create or include diagrams in my responses. However, I can explain the effect of this form of government intervention on the price mechanism.
Government intervention in the form of price controls, such as stipulated prices, can have both intended and unintended consequences on the price mechanism. In this case, the government set a maximum price for commodities, in an attempt to control inflation and protect consumers from unscrupulous traders.
The diagram of the effect of this government intervention would show a horizontal line representing the stipulated price, which represents the maximum price that traders are allowed to charge.
One possible outcome is that the government intervention may lead to a shortage of goods in the market. If the stipulated price is set below the equilibrium price (the price at which quantity demanded equals quantity supplied), suppliers may no longer find it profitable to produce and sell the goods at that price. This can result in a decrease in supply and a shortage in the market, represented by a shift to the left of the supply curve.
Additionally, the government intervention may also lead to a decrease in quality or availability of goods. If traders are forced to sell at a price lower than what they would have preferred, they may reduce the quality of the goods being sold or limit the quantities available to consumers. This can lead to a decrease in consumer welfare.
On the other hand, if traders comply with the stipulated prices and continue to supply the goods at the controlled price, the effect on the price mechanism would be a shift of the supply curve to the right. This can lead to an excess supply in the market, as the quantity supplied at the stipulated price may exceed the quantity demanded by consumers.
Overall, the government intervention in setting stipulated prices can distort the price mechanism, leading to unintended consequences such as shortages, reduced quality, or excess supply in the market.