Yet more proof that price controls result in shortages.

[Barnabas]

If that happens it is because he isnt intimidating the corporations hard enough.

[Flubber]

Price setting can take place without major disruptions depending on how responsive it is. For example, the newfoundland government has a gasoline price board which sets retail gasoline prices . It has ended the "weekend price gouge" but more generally the consumers haven't really seen prices go lower. Transportation costs and taxes still mean that they have some of the highest gasoline prices in the country.

The price has to reflect the more general market since otherwise they would quickly be short

[JellyBean]

Originally posted by Spiffor
As such, the solution is fairly simple: you raise the set price of processed coffee, or you lower the set price of raw coffee. However, I don't see where the very concept of set price has gone wrong.

If your set price has to be the same as the price that the market would determine anyway, what is the point of setting the price?

[Skanky Burns]

Indeed.

[Kidlicious]

Originally posted by JellyBean
If your set price has to be the same as the price that the market would determine anyway, what is the point of setting the price?

It doesn't have to be as high if there is price gouging. When there is price gouging the cost of production isn't relative. The problem is that price controls are used against inflation. During inflation people don't really know WTF to charge so it's difficult to set prices.

BTW, price controls is not necessarily a 'socialist' policy.

[Spiffor]

Originally posted by JellyBean
If your set price has to be the same as the price that the market would determine anyway, what is the point of setting the price?

The market won't necessarily determine the same price. For example, there are such situations where the market prices allow for huge profits by the companies. If the State sets a lower price, where the activity remains profitable, the set price will be different than the market price, but will still be economical.

[Urban Ranger]

Originally posted by JellyBean
If your set price has to be the same as the price that the market would determine anyway, what is the point of setting the price?

The market could only determine a fair price if it is functioning properly. IOW when it is openly competitive. A lot of markets aren't that way.

[JellyBean]

Originally posted by Urban Ranger
The market could only determine a fair price if it is functioning properly. IOW when it is openly competitive. A lot of markets aren't that way.

Exactly right - so if your market isn't perfectly competitive, and you can figure out what the price would be if the market was perfectly competitive, government price controls can be a good thing.

They're not the only way to deal with imperfect competition, though. You can also subsidise startups (or at least remove legislative obstacles to them) to reduce barriers to entry in the marketplace. You can punish companies that collude with one another. You can make the pricing system more transparent, so that everybody can see what the prices are. There are probably plenty of others that I'm missing.

Any of these may be a better option than the others, depending on the circumstances. All of them, however, should only be used to bring the market closer to its true equilibrium point when it is not doing so of its own accord. If you try to use price controls to increase the supply, as in this case ... well, you see what happened.

If Chavez wanted coffee to be cheap enough for the poor, he would have done better to subsidise it, which would bring the price down without causing shortages. It would have cost him money to implement but, as Heinlein would say, There Ain't No Such Thing As A Free Lunch. TANSTAAFL.

[Ted Striker]

SCOTUM

[Dinner]

Originally posted by Az

There won't be over production in the future because why would farmers produce crops they lose money on? Why would bakers bake bread they lose money on? Why should anyone make anything they lose money on?

take over production. as in nationalize.

You don't get it. Chavez is trying this and then end result is as predictable as the sun rising tomorrow. The companies which are losing money and having their goods seized will stop producing goods which they're producing loses on. Already importers will not import because they don't want to lose money. The domestic producers are held hostage and having the military seize the goods they don't want to sell at a lose but in the future those domestic companies will be out of business because they can't continually produce goods which they lose money on.

[Dinner]

Originally posted by Brachy-Pride
If that happens it is because he isnt intimidating the corporations hard enough.

That's brain dead thinking. It has nothing to do with corporations stealing from the people (which is an ever popular if idiotic socialist mind set) and it has everything to do with no one wanting to lose money. Why would anyone sell something for less then it cost them to make or buy?

[Barnabas]

I never said the corporations were stealing.
Just that if more mafia/union/intimidation were used prices could be controled.

IBut it would eventually be bad, because they would stop investing.

[Fake Boris]

To be fair, Oerdin, I have tried to verify whether or not the producers were really making losses or if it was just another concerted anti-Chavez move, but I haven't been able to find good sources about the coffee distribution system and the normal price at each step.

Coffee corporations make TONS of profits by selling their products with a fat margin in the first world. What Chavez has probably done, with the recent increase in price that he has agreed on with the producers, is to make coffee available at a fairer price but without insane margins.

[Dinner]

Coffee is a commodity dude. There is no insane mark up for the coffee itself. Now coffee shops have a nice mark up because they're not just paying for the coffee but also the rent on the shop, the decorations, and a million other things. Every restaurant/service place has such mark ups though if you went to the grocery store and just bought ground coffee you'd find the stuff is dirt cheap without the margins you're claiming.

[Imran Siddiqui]

Hell ground coffee is cheaper than bottled water .