In what various ways does the government set prices? Why do they engage in such activities?

In what various ways does the government set prices? Why do they engage in such activities?

In what various ways does the government set prices? Why do they engage in such activities?



1. Establishing margins, set prices and ceilings

2. Restricting price changes, competing in the market, or granting subsidies

3. Acting as a purchasing monopsony
Monopsony = Buying-side of a selling-
side monopoly, a 'buyer's monopoly'

4. Enforcing price freezes
Price freezes = Price of a product cannot be increased

Government price setting is encountered in a number of ways when companies conduct business in foreign countries. In order to control prices, governments may establish margins, set prices and floors on ceilings, restrict price changes, compete in the market, grant subsidies or act as a purchasing monopsony or selling monopoly. The government may also influence prices by permitting, or even encouraging, business to collude in setting manipulative prices.

Price controls are normally exercised for political and social reasons such as to control inflation, protect consumers from unjustified price increases and stimulate equal distribution of wealth.


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