Sugar prices have soared this year, even as the prices of many other commodities have remained relatively low due to weak demand during the economic crisis. Just last year, sugar prices were also low.
What is behind the high and rising sugar prices and what consequences do the rising prices have for the allocation of scarce resources and for three stakeholders in the economy -- producers, consumers, and governments?
The two articles below are so jam-packed with links to the material we have covered so far in our course, they make me giddy with excitement! I'd like you to read the articles, and to look at the video and price chart link that accompany The New York Times article.
http://www.nytimes.com/2009/08/05/business/global/05sugar.html
http://www.latimes.com/news/nationworld/world/la-fg-pakistan-sugar23-2009sep23,0,6252552.story
What connections do you see to our course? Tell us in 10 sentences or less - preferably focusing on one concept or theory. Depth is better than breadth!
The connections i see are the frequent mentions of hoarding, long waits for consumers i.e. queues and shortages of goods (the sugar) and farmers switching crops that they farm to best fit in with the market. In our course we talked and discussed all of these factors, which are all outcomes and primarily consequences to price ceilings. Price ceilings seem to be good and effective in concept, however when practiced and put into use absolute disasters. They do not help any situation, quite on the contrary they completely back fire and only more problems arise, including significant dangers to the people of the country using them. Personally i think they are not useful at all and shouldnt ever be used, because there are only too many examples which depict exactly how misfunctional and flawed the theory really is (India, Pakistan and Zimbabwe are all modern and present-day examples).
ReplyDeleteI'd like to say something about Julia's comment, so that it is clearer what the expectations are.
ReplyDeleteJulia simply listed the connections she saw and made some very vague comments about the suitability of government intervention in markets like sugar.
I expect you to tackle only one (probably) connection and try to explain the situation in depth, rather than listing the links as she has done. Use the theories more explicitly, in greater detail. Refer to quotes from the articles.
Julia has another shot at this since she finished her comment before Wednesday. Thanks, Julia, for getting in so early to give us a chance to clear up what should be done!
The connection that stands out to me most will probably have to be the latin words "ceteris paribus", which imply that the law of demand and supply only is true when there are no outside factors playing a role. The government is one such factor, and the articles prove that if the government intervenes, then the whole market reacts strongly. An example is that when the Indian government restricted exports of sugar. This created an immense drop in prices, as a lot of the sugar was meant to be exported; "many farmers, including Mr. Gujar, burned their crop in the field". Many farmers also switched crops, as they no longer had any incentive to grow sugar, and chose producer substitute goods. This radical turn of events once again had a strong impact on the price of sugar, as prices soared due to insufficient supply to meet the demand. Similarly, wheat prices were too low in Pakistan which the government tried to raise with policies, giving farmers incentives to switch from sugar to wheat. Inevitably supply of sugar decreased, raising the price. Of course the government did not want this to happen, as their primary objective was to lower the prices. This however backfired, proving that the market is best left alone, to ensure that the laws of demand and supply can work.
ReplyDeleteJung Hyun said...
ReplyDeleteDue to the rising price of sugar, the Indian government used the government policy of “restricting exports” to decrease the price. This policy was effective since the increase in amount of sugar available enabled the price of sugar to decrease from P1 to P2 and brought an increase to the quantity of sugar from Q1 to Q2, thus lowering the price of sugar. However, the producers switched to producing other products such as bananas, due to the law of supply:as the price decreases, the quantity supplied decreases and vice versa. Furthermore,producers changed to producing bananas as tney are producer substitutes and can be easily replaced by using the same resources to gain more profit. However, this caused a shortage of sugar: where the quantity demanded is higher than the quantity supplied. This gradually made consumers unhappy as they "waited for more than three hours until finally a huddle of men began unloading from a van what the gathering desperately wanted: sugar." This is causing stampedes as consumers are "elbowing and shoving to keep their place". This is insufficient for the gov. as a whole because customers are spending less time on their work because of waiting in queues. The gov. already has “to meet that demand …will probably import 20 to 30 percent of the sugar it uses this fiscal year”. Hence, the government policy which was intended to support the consumers has lead to disastrous consequences for the consumers in particular, which would take a long time to solve.
Moritz Sturm
ReplyDeleteThe most significant connection I am making between our course work and the articles are the laws of supply and demand. From the reactions of all stakeholders we clearly see that as the quantity of a good or service supplied increases the price decreases. The producers will do anything to stop this from happening by hoarding the sugar they grow and through this keeping the supply unnaturally low. From the consumer’s perspective this may be somewhat sinister, but don’t forget to consider the producers point of view. While the sugar price was soaring they made the short-term smart choice by growing what seemed most profitable. The situation has changed now, after they have put all of their eggs in one basket and are not able to sell their goods, in this case sugar, for a profitable price. The price has decreased so much that in some cases burning their crop was cheaper than paying for the sugar to be harvested and sold. What other options do the farmers have to survive other than hoarding their goods, waiting for better times to come? The farmers cannot be blamed for not knowing the long-term effects of their actions, so really it is the governments fault for not planning ahead and subsidizing the right crops to ensure a balanced supply and demand of ally crops. I think I will stick to my virtual farm on Farmville, where the laws of supply and demand do not exist and no matter how much of a certain good I produce, the money I make per crop will stay the same, and, most notably, the results of all of my actions are 100% predictable.
I disagree with Jasper’s claim saying that the economy is best left alone. We can see that price ceilings obviously don’t lead to anything positive. However, there are other cases where the government interferes successfully in order to avoid what is happening in India. One example of this is the American Farm Subsidy System that subsidizes certain groups of farmers to avoid a crash. Corn and cotton farmers are two examples of farmers that are subsidized because if this was not the case, the price would plummet, due to the extreme surplus that would occur. This would force many farmers into insolvency which is something that Indian sugarcane farmers have to struggle with a lot. Their way out of it is switching to the production of other goods. I think however, that there is an easier way of handling this problem. Because of the successful interference of the US government in their economy, I think that certain involvement is good. If the Indian government would introduce the same measures as the US, they would possible have an opportunity to escape this long-lasting problem.
ReplyDelete(http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=104x3784264)
(http://artsci.wustl.edu/~anthro/articles/09harvest.html)
In this scenario we are mainly seeing the effects of weather and poor policies on the supply curve. As the weather has made it impossible for producers to grow as much sugar, supply has fallen, and the government's action has been too extreme to help. From restricting to subsidizing exports is a drastic change in policy on the government's part, and has caused this huge shortage. I, however, disagree with Jasper, and think that some government intervention could be beneficial, if it was moderate, rational, and decisions were made by people truly educated in economics who would understand the effect of any action. No action can change the weather, but the government could have paid some farmers to remain in the sugar industry rather than switching crops, or encouraged diversification, so that when the price of one good fell, farmers could continue growing it, without going out of business. If the government financially encouraged diversification, the entire economy would be more stable, and farmers wouldn't need to worry so much about individual profits from specific crops.
ReplyDeleteA price ceiling is a price set by the government that is below the equilibrium price establish by the government for reasons such as popularity gain and market control. It might not have a major impact on societies that are not dependent on the good that is controlled, but as seen in India and Pakistan “sugar is a culinary and cultural touchstone“. Sugar is a necessary good and demand is still increasing due to a population increase in India. Since the price has decreased so much, producers have less incentive to produce sugar and might switch to producer substitutes such as bananas as the Indian Sanjay Gujar did or might just totally drop out of the business. Some sugar mills “did not even bother to send out crews”, which results in a loss of crop and might even lead to unemployment. Leading on, the shortage created, might not only cause a great problem in the presence, by “waiting for more than three hours” in long queues, hoarding and violent stampedes, but also creates fear for the future. The next generations do not want to get into sugar business “They won’t do this,” Mr Gujar said. “They will change”. Once India was self- sufficient and could export up to 20% of its sugar production; now industry officials and analysts are predicting that “India will not produce enough to satisfy domestic demand until at least 2011”. This shows that government interference such as price ceilings can lead to many problems on the market, showing that the economy is far more complex than the theories of the supply and demand laws.
ReplyDeleteAll information was taken out of the articles from the NYTimes.
One of the main connections I made to our class terms from reading these articles is producer substitutes. When the sugar farmers realize that they are not making enough money to cover their costs by purely selling sugar they should look towards making ethanol (as liquor or fuel). Governments should also support and encourage farmers to do this because the fuel is environmentally friendly and especially in India pollution is a prominent issue. “The river is dead, it just has not been officially cremated,” the director of the New Delhi- based Centre for Science and Environment states. In Brazil the sugar farmers are very successful by selling ethanol and Brazil is the second largest ethanol producer in the world.
ReplyDeleteBy advertising ethanol to the consumers as an alternative fuel source the sugar farmers would be able to sell ethanol successfully and make enough money.
A problem is that it is fairly pricey to make ethanol and therefore the producer would have to sell it at a high price. However I think this product would be a good one for the government to invest money into because it benefits the country.
http://topics.nytimes.com/topics/reference/timestopics/subjects/e/ethanol/index.html
http://www.spiegel.de/international/world/0,1518,493033,00.html
"I've been waiting here for three hours. Why is this happening? Ask the people in high places." So lets see what the people in the high places had done to these poor consumers.
ReplyDeleteWith the significant decrease in sugar prices producers started to loose the incentive to produce sugar and switched to producer substitutes as Sanjay Gujar has done.
I therefore agree with Jasper who said "This however backfired, proving that the market is best left alone, to ensure that the laws of demand and supply can work." The Government intervening with the market and putting a price ceiling on sugar has cased a great reaction on the whole market. Due to the law of supply (as prices decreased) the quantity supplied also decreased which now causes farmers to switch to producers substitutes such as bananas, to hoard their sugar or to simply burn it as Sanjay Gujar did. This is why consumers are struggling so much to get their sugar "I come here every day but can't get any sugar.“ This shortage has been caused by the government trying to help consumers with low sugar prices and proves that the government intervening with the market has negative backfires.
By Leonard Gorbach
One of the connections between the two articles and our class work are the various government incentives in employing price ceilings and price floors and the consequences thereof.
ReplyDeleteIn order to reassure popularity governments seek refuge in the market for goods whic are considered necessities, in India the market for sugar has become such a target. Instead of letting the market for this ‘political commodity’ abide to the laws of supply and demand, the Indian government decided to intervene and counteract the surging prices by implementing a price ceiling. This was done in order to protect consumers (the majority of their voters), for who sugar is a daily necessity. Due to the lack of profitability accompanying these low prices the farmers turned to producer substitutes in the hope of prospering there. Thus a shortage in sugar occurred due to suppliers decreasing rapidly. The government’s strategy to help the consumers merely dug the economic hole deeper. On the other hand in Pakistan, where most ‘sugar mills are owned by some of Pakistan's most powerful politicians’ more selfish incentives are evident. The market price for sugar had reached another one of its lows, due to many farmers switching to the producer substitute wheat after ‘a government move to raise the minimum price of that crop’. Those sugar mills owned either directly or indirectly by the government now have less competition and chose to hoard their stock ‘to artificially send prices higher’; meanwhile the people of Pakistan are forced to endure ‘elbowing and shoving’ as stampedes form in front of shops as a result of the lack in supply and the government falsely blames the farmers of the offence they are committing.
Astrid V.
I do agree with both Jasper and Constantins claims about the economy eventhough they do disagree with another. I do think that the Economy will work best alone, but if it doesn't we must do something against it. Price caps are as Jasper said obviously not the right conclusion since they cause people "waiting for more than three hours” for some sugar! Other solutions are probably more reliable then. The government for example could give subsidies to the farmers to make increase the supply and make the price go down.
ReplyDeleteIn total though all this has to do with out course since the article cleary shows the effect of price caps and the major disadvantages and this is exactly what we were trying to prove with our multiple analysis' during class. We can also learn from these(sadly real life) case studies what other solutions are and what would be better for the entire country and the economy!
Perhaps one of the strongest connections I see is the relation to producer substitutes. The farmers, thinking more in the short-term view of things try to switch crops to benefit themselves the most, depending on weather, time or financial situations. However in India this is not so easy because of the enormous necessity sugar is to the economy and people of the country. They use it in so many products, drinks, foods, everything. So, switching products as the farmer can be meticulous and not always the most efficient way of solving a problem. I agree with Antonia who said that they should invest in maybe producing Ethanol instead as it is good for the environment and beneficial to the economy, it is high in demand and could be a good export to make money. However the problem still remains - what would India use as a substitute for sugar is some farmers switched products? and if even less farmers are farming the sugar cane crop, then wouldnt the shortage just plunge further down? I think the best solution would be to put in subsidies, however the government would need to think long and hard, and consult acquired economists to make their decision. It is a poor country and cannot afford to invest in badly made decisions. There is a way out of the problem without price ceilings, it may just require deeper thinking and a more structured strategy.
ReplyDeleteI do agree with Elayne that the "Goverment Intervention In Some Cases Is Beneficial"
ReplyDeleteA profit that i see is the goverment decided to set a price cieling to avoid of social crisis:
It means when the price of a good increases thus we can see the people's complaint.
So the goverment do such thing for approbate his situation, but also this is a solution just for short time.
And as i know in total we can see just the disadvantage of price cieling:( 1-Shortage 2-Queues 3- Hoarding 4- Black marketing )
I think the best way to solve these problems is that the goverment should give some subsidy to producer for they produce more
And then the supply will increases thus the price cieling will be equal to equilibrium price ,and after that the quantity demanded will be equal to quantity supplied too.
The government interfering with a economy is nothing new and especially in India, where the government is trying to keep prices low, the price for sugar often changes in a short period time. In my opinion this is a poor attempt from the Indian Government to gain popularity amongst the people. Obviously their main incentive was to achieve low prices by “paying high-cost manufacturers to stop making sugar.” Governments often pay producers not to produce, while compensating them for the estimated product they would have produced. This doesn't work because the producers would switch into producing their substitute good. In India this is wheat and by making producers switch this would call forth a chain reaction. The prices would rise again due to a low supply and a high demand on sugar. That doesn't mean that government intervention is necessarily a bad thing because the government could also give subsides which essentially lower the cost of production for firms- supply increases- prices decrease. I agree with Constantin, the only problem with subsidies is that they take a long time.
ReplyDeleteThe issues of sugar price in India and Pakistan are both caused by the government’s unthoughtful regulations and became nominated as ‘political commodities’. As it might have been a conduct to stabilize the economy or make the consumers happy, the regulations actually made the situations worse. India which used to be the 2nd largest economy in sugar production after Brazil, went through sugar shortage when banana became the ‘producer substitute’ of sugar. Therefore price of sugar went up and the government imposed a restriction on the export of sugar or the amount of sugar that each mill can sell, which later made the conditions worse. So the government had to reverse courses, which was when all the producers had already switched their products. It apparently shows that the limitations that the government made, such as export restrictions or the amount of quantity that can be sold, had a large impact on the destruction of the sugar price system eventually and were treated under the governments commands to be referred to as ‘political commodities’. Also in Pakistan, there was a problem with the issue of ‘hoarding’ that producers, mostly related with the government directly or indirectly, were suspected of secretly hiding their stockpiles to artificially increase the price. Moreover, after the government declared price floor in wheat, many farmers switched to it as producer substitutes, leaving the industry of sugar not as competitive as before, leaving it a good place for the government related farmers. Therefore, the government is suspected for having advantaged the officials to make more profits by providing them a good space and using the restrictions just as means. The two cases have relationship that they both show the government’s limited thoughts about the upcoming future economy which made the situations worse, and ‘sugar’ denominated itself as to ‘political commodities’.
ReplyDeleteThere are several possible links to our classes in these two articles, one of the most clear being the shortages caused by too much demand and too little quantity supplied. This is happening mostly because of constant and rather useless government interference. The government is always one step behind in providing support for the suppliers and consumers as in the case of India where the government basically blocked most of the exports, which then helped to create a "glut". After a while, seeing that this policy was absolutely useless, the government once again decided to subsidize the exports, just too late, as most farmers had switched to another producer substitute such as bananas, therefore causing the current shortage of sugar.
ReplyDeleteSuch is the case in Pakistan; thanks to unhelpful government interference, the country which is in so much love with sugar is getting less and less of it. Firstly, the government attempted to raise prices, causing many sugar farmers to give up their crop and start on wheat as a producer substitute. Then, the government refused point-blank to import sugar supplies in readiness of a shortage, much familiar to the one ravaging the country at the moment.
As foresight is the responsibility of a government, I would see these developing countries' governments as less than unhelpful.
In response to Chris' comment, I'd like to comment that he ought to give more examples of "other solutions...", as I would like to remind him that both governments already tried to subsidize the supplies, unfortunately a little too late.
In conclusion, I would like to say that these two articles show us examples of what governments ought not to do, or rather, to do more swiftly, crossing over with our recent roleplays as Government, Producer and Consumer.
In the beginning, I would say that I strongly agree with Anselm's respond to the articles, displaying a beautiful scenario on how governments should not behave. While in Pakistan did the government try to use their power to make a good deal, since about half of the sugar mills already belonged to powerful politicians, was India unable to react and control the rapid growth and development happening in their country. In their eyes it only left them to control the market by force, setting a price ceiling on the sugar mills, regulating on "how much sugar each mill can sell every month." This caused many farmers to switch to producer substitutes, which was in that case bananas. As the government realised their stupidity, they tried to subsidize sugar again, just in time as the farmers made the difficult switch to another crop. This catalysed the rapid detour the market was taking into a shortage.
ReplyDeletePakistan on the other hand has fallen unlucky, since powerful politicians seem to control the market in hoarding of the sugar, to forcefully pull back the supply curve and let the price surge in to the sky. This also results into farmers moving from sugar to wheat crops, trying to escape this power struggle, which additionally decreased the total sugar output. Also did the government refuse the pleading of the sugar mills to import 700,000 tons of sugar to stabilize the market, because they mistrusted the mills and accused them of hiding away their products.
In the end of adding to Anselms conclusion, did the government display of palette of skills into riding both sugar industries into chaos. They totally lost control over the market, and tried to subsidize at the wrong time, only worsening their situation. They should have evaluated the problem more thoroughly and considered the long-term consequences resulting due to their actions.
When the price of sugar falls the producers merely switch to producer substitutes in the form of other crops, this has to change though. Crops like sugar cane are useful for a lot more than simply sugar. “Electricity can fetch high prices because of India’s chronic energy shortage” and this is what farmers and factory owners have to take advantage of. The suppliers need to diversify into new and under developed markets such as the electricity market. Doing this they increase their sources of income and no longer rely on only the consumer. Brazil has managed to diversify its use of sugar and now is the largest sugar producer mainly because it managed to find alternate used for sugar if there is a surplus on the market. This keeps the price of sugar stable as well because it eliminates the chance of a surplus. “Many farmers, including Mr. Gujar, burned their crop in the field;” of course this results in a huge loss for the farmer and has no point at all. Also in order to bring down the cost of production as in Brazil, the government should enforce producer co-operatives in which the various farmers can invest in equipment together which makes it easier to finance machinery and harvest crops faster and more efficient. The government should not try to intervene in the market using price and export controls, but rather enforce strategies such as the producer co-operatives, the diversification of product application and the diversification of income sources.
ReplyDeleteI also agree with Niels, that government interference in the market is nothing new, and that price ceilings are a quick way for governments to achieve a standard that the consumers agree with. But although he says that this is “a poor attempt...to gain popularity amongst the people”, I think that it is, however sleazy and unsavory a method, it is indeed an effective one and one that basically achieves their goal of meeting the consumer’s needs. The basic fact is this: the government cares more about the consumers than the producers, they are a larger body, they have a larger voice, and they have more power over the reputation of the government. So if the government is given the choice to meet their people’s needs or disregard them, won’t they pick the former? It not only will help them “gain popularity”, but also create a fallback for them when the suppliers run out of sugar, and the consumers will not attack the government, but the producers, because they are the ones who ran out of sugar, aren’t they? I also disagree with Niels’ comment that the “government intervention is [not] necessarily a bad thing”, because I think, that under most circumstances, it is a bad thing. One of the worst things that happens when government interferes is that they feel a compulsion to try to fix everything they just did wrong, creating a chain reaction of wrong decisions. So not only are subsidies long to create an effect, but they are also just another interference that is going to have to be fixed.
ReplyDeleteI would like to disagree with Kevin's remark about the consumers having more influence over government than producers, as it is obviously incorrect. In response to his question, the short answer is "No, they will not". This is because, in fact, producers have more sway over government, especially, as in this case, farmers, because the government feels an obligation to help those who work away in the fields from dawn 'til dusk, fulfilling the tradional image of a farmer.
ReplyDeleteKevin also incorrectly states that if the government pleases consumers enough, the government will be supported by consumers in times of hardship, who will, then instead, attack the producers. As it is because of the government's meddling that such shortages occur, the fickle consumers will hardly remember what the government did for them in the face of what is happening now. For example, as Perveen Akhtar says, "I've been waiting here for three hours, why is this happening? Ask the people in high places." This quote alone shows the contempt which the ordinary consumers feel for the government, at least in Pakistan. This is evident by the sarcastic term, "...people in high places...", used in place of the word "government".
I would also like to disagree with Kevin's point on subsidies. Although they are a form of government interference on the economy, subsidies can be enormously helpful if used properly, as was not in the case of India and Pakistan.
The connection I can see between the two articles and our class work are producer substitutes. The farmers can not cover their costs because the prices of the good they are producing fell and therefore switch to another good. Here some of the farmers switch from sugar to bananas, like Sanjay Gujar. Some of the farmers only switch to another good but some of them are going totally out of their business, they stop producing at all.
ReplyDeleteBoth of the articles are about price ceilings which is a price set by the government which is below the equilibrium price.
Sugar is a necessary good and therefore the demand is very high, this is also due to the fact that the population in India has grown.
Another country like Brazil which is the world’s largest sugar producer, is making profit out of the situation India is in, from the shortage which India has.
“I’ve been coming here every day for the last month, and only once did I get sugar.” This also shows again, that the government has caused a big shortage. The consumers have to wait hours to get only a small amount of sugar which they were waiting for.
“Industry officials and analysts say that the recent rise in the price had lured some farmers back to sugar cane, but India will not produce enough to satisfy domestic demand until at least 2011.” This quote shows that the producers can not produce any more, they do not have enough money to produce more. This also shows that the government had produced many problems. The shortage of sugar is caused by the government which is trying to help the consumers with lower prices of sugar. It also seems that price ceilings are a quick, good and effective solution but they cause more problems than they solve, the consumers and producers are unhappy with it.
I would like to take the discussion further and discuss that price ceilings are not only used in countries such as India and Pakistan, but also in the EU and Germany. There has been a lot going on with German farmers on milk strikes and protests. The government has lowered the price of milk. As we have learned in class, when the government puts up a price ceiling and therefore lowers the price under the equilibrium it may result in problems and dissatisfaction, since producers do not have a lot of money to cover their costs and might loose their incentives on producing the good which could lead to protests and problems. Milk farmers are not happy about the price ceiling established on milk for “28-34 euro cents a litre”; they want a minimum of 43 cents per litre. There has been an over production in milk and therefore the government thought that it might be a good idea to lower the price of milk in order to increase the demand on milk products. However, now there are strikes and unhappiness rising among the farmers, since they are not able to cover all of their costs. The farmers are saying that “rising fuel and feed costs have pushed up their operating costs“, since they need fuel for their machines such as a tractor. Dairy farmers are “ pouring milk down drains and feedings it to their cows.” Even neighbouring countries such as Belgium and Austria are involved and are not importing any milk to Germany so that the government realizes that they have to change the prices again. There is a lot of discussion going on and the future is still uncertain.
ReplyDeleteHowever, if we think about what would happen if the government would not have interfered and put up a price ceiling, there would have been a surplus and farmers might have started pouring milk away (which as we can see has happened also with the price ceiling) or the government would have buy the over produced milk which would have been done with the tax money and therefore result in unhappiness for the people. In some cases it is better to leave the market alone, since the market will tell the producers how to behave.
(information is taken from http://news.bbc.co.uk/2/hi/europe/7426222.stm)
The market always has a fluctuation in the price, due to the demand of consumers and supply of suppliers. However the agricultural products have more a bust cycle, in other words, their prices go up and down a lot typically. Why is this only in the case of agricultural products? Firstly, as mentioned in both articles, the governments try to help the producers when they can’t afford the costs by price floors. So when the price floor is given to the products, farmers gain incentives and supply will increase, again causing prices to fall and the whole cycle repeated. Moreover, the price supports are usually more generously given to the farmers than any other sector, since we normally have a touching part of feeling towards the farmers, so-called sympathy. Though what makes the prices fluctuation faster than the others is the efficiency of price floors. This is meant to be a lot faster than giving the farmers subsidies to produce the whole thing again, therefore the market prices will also be in a rush change. Therefore, the government’s policies are wholly taking part in the rushing cycles of agricultural markets, and this should be restricted. Though, it may take a longer time to solve, solutions that read further outcomes such as subsidies are much better.
ReplyDeleteI would like to add to Amselm statement by saying that subsidies can be helpful but they would take a long time to work.
ReplyDeleteFirst the subsidies would have to be decided on in the goverment and that is going to take a long time because not all parlimentary laders will accept the new reform. Secondly the subsidies would have to be but to the farmer. This is going to result in a tax raise or a increase in goverment dept in India.
Before the farmers could use the subsidies to increase supply they would have to wait for a new harvest season. In Germany, a very high GDP, this would take a "minimum of 2 years" (Jennifer Brandsberg- Engelmann)
I mentioned earlier that goverment interfierence is not always a bad thing but a subsidy would take to long to have a result on the market and before then there would already be a change in the economy.
I think that the goverment should leave the market alone because it would remove all the "bad" farmers.
A price floor is a minimum price set by the government above the equilibrium price, that is typically meant to help the producer. A subsidy is a government payment to firms, typically to reduce prices by decreasing production cost for producers.
ReplyDeleteI very much agree with the many of my classmates who have stated that the economy is best left alone. Government intervention in the economy only causes market volatility and as Adam Smith said in his book, The Wealth of Nations, a economy that is left to itself is guided by an "invisible hand" that will allow it to function in a way that is best for it.
In the example of India's sugar production, the massive amount of control placed over sugar has only resulted in both farmers and factories looking to substitute goods, whether it be farmers moving to bananas or factories looking to generate power and produce ethanol. These substitutes have only pushed prices higher as the supply decreases. This being a dramatic turn around from two years ago when corn producers were producing much more than demanded and prices plummeted. The government policy turn around in response to this price plummet caused this new shortage and any continued government involvement in the market can only continue this market volatility, which will only push producers to look for more stable markets and aggravate consumers as they constantly have to adapt to new prices.
I disagree with Constantine that certain types of involvement is good especially the example of the US corn farmers that was given. In the US, many corn farmers are now selling corn to the production of ethanol due to the higher prices that they are able to receive. Thus, though US corn producers receive a subsidy to grow corn, the prices of corn have still both increased since 2005 and become much, much more volitile (at a great expense to the US tax payer).
In conclusion, almost all government intervention in the economy greatly increases the volatility of the market, as the government tries to achieve the right amount of regulation and then tries to adapt to the constant changing of the market. This increased volatility only pushes producers to more stable markets and angers consumers as they have to repeatedly adapt to new prices.
All statistical data taken from wolframalpha and the originally linked articles.
although there are many negatives to price controls but, you must take into account the consequences of not acting on this problem. the producers of the product will most certainly be disturbed dramatically with the majority of the smaller producers dropping of the bottom end of the market. this in turn, as we all very well know cause the price to increase again at such an alarming rate that the producers who left the market to produce other goods return, and so the cycle continues. this is evidently why the government stepped in and too these actions. this is how the market works in almost every case if equilibrium is not sustained.
ReplyDelete