Sep 19 2007

China’s “visible hand” clamps down on rising prices

7 Responses to “China’s “visible hand” clamps down on rising prices”

1. # Angel Liuon 21 Sep 2007 at 7:56 pm

   A price ceiling can temporarily ease inflation, but in the long run, there are less goods available as suppliers decrease quantity in production, and as supply decreases and demand remains, shortage deteriorate. Since demand is unchangeable because of people’s needs for foods and gas, an increase in supply can decrease price, thus satisfying consumers’ demands. A free market will adjust by itself to reach the equilibrium: firms will improve its efficiency, consumers will switch between substitutes for the lowest price. China’s inflation will not improve under the government’s so called principle

2. # andyxuon 23 Sep 2007 at 12:15 pm

   The price-freeze on pork and other food products is unwise because the government does not realize underlying causes of this recent price boom.

   One is the inflation of the yuan, causing pig farmers to pay more for supplies needed to raise pigs, thus increasing production costs.

   The second is the strain that the government places on all farmers in China - the lack of subsidies and property rights. Because farmers cannot obtain private land to farm, their revenues from agricultural products cannot keep up with inflation. Their much needed financial aid is not supplied, and so their only way to “survive” is to increase the price of their products.

   To the average consumer, the government appears to be helping them by enabling more purchases of food. However, what the government is doign is straining producers’ scare revenues, reducing their outputs because they are forced to migrate elsewhere where it is possible to earn a living. To the rest of the farmers, problems such as the quality of meat, substituting required processing ingredients with unsafe chemicals to lessen costs, will arise. This further reduces the supply of food. Therefore, the price-freeze will not benefit the producers nor the consumers.

   Regarding to the price-freeze in parking and park entrance fees, the tactic might prove useful, assuming that the government enforces this law. It is common in China that state-firms acquire land at valuable locations for free (especially decades ago), then charge heavily for parking or park entrance fees. The money received often goes to a few corrupted men from these state-firms. They endure no costs (because land is free) and still creates a huge (unfair) revenue.

   Perhaps it is for the interest of citizens that the central government sets up this price-freeze. It should also be noted that the inability of the government to enforce its vague policies is too common.

3. # Howard Jingon 25 Sep 2007 at 1:31 pm

   In a “laissez-faire” approach, I think that China would eventually begin importing more and more pork from other countries, or rely on cheaper substitutes such as fish, pork, or beef. Maybe China will eventually come to think of pork as a luxury instead of a necessity and dramatically reduce demand for it until there is enough Chinese pork for everyone.

4. # kevinchiuon 26 Sep 2007 at 9:02 am

   The average Chinese person will be affected negatively because the price control will cause a shortage in quantity supplied by the average Chinese worker; the price control employed by the government will restrict the resource costs needed by the workers in order to provide a certain good or service. The lack of revenue will force the farmers to raise other animals or harvest other products in order to gain a larger revenue.

   The free-market approach would eventually cause the market to reach equilibrium because firms will be forced to use the least-cost production, and until then consumers will purchase a substitute good to replace the original good, (eg. beef instead of pork).

5. # Jessica Ngon 26 Sep 2007 at 2:28 pm

   This is an example of a government intervention in an economy. In this case, a price ceiling is established by the government in order to “help” the consumers gain more consumption power. However, this as usual, although with good intentions in mind, will in fact have a negative effect on the economy. As producers are now forced to sell their products at a lower price in order to enable consumers to buy more, producers will soon “lose interst” in producing that certain product, in this case, pork. Instead, they might turn to other goods in order to earn a living. Thus, this creates a shortage of pork produced, creating a market disequilibrium, with ineffecient allocative resources. In turn, the Chinese people would get even madder at the government.
   If the Chinese government left the market alone in a laissez-faire policy, the market itself will return back to equilibrium through aspects of the market economy such as competition, forcing producers to allocate their resources effeciently at a minimum cost to produce maximum profit.

6. # Charlie.Gaoon 26 Sep 2007 at 6:47 pm

   What the government is doing here is a classic example of setting a price ceiling well below the equilibrium line. While the government is trying to do might be “good” in a sense, in that it’s trying to help the consumers but this harms the producers because it is not making enough profit from the production price, thus lowering the supply.

   From what we learned so far, if China converted into a laissez faire policy, the market will slowly revert itself back to a state of equilibrium where MB=MC. The factors that will cause this reversion would be competition and the scarcity of resources, which forces these producers to allocate their resources efficiently.

7. # JenniferChoion 28 Sep 2007 at 1:02 pm

   It seems pretty clear that a price ceiling can hold inflation for a short period time, but obviously it will not help the situation in the long run. As angel said, this is becuase the suppliers will decrease their production, and because the demand remains the same, shortage of that product will decrease. The government in this case is not actually helping the consumers, but actually it is making the situation even worse for the poor consumers to obtain their products.

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