Question:
In January 2011, the Ethiopian government announced they were putting price controls on a number of commodities whose prices had been rising rapidly. These commodities included bread, pasta, meat, sugar, soft drinks, flour, and many others products. The government argued that these prices had been because rising because by the private sector, and the price ceilings were just correcting this 'market failure'.
(a) Using one of the commodities listed here as an example, model this problem from an economic perspective this example of market failure?
(b) The government also threatened to allow previously - banned imports of some of these moduas if the domestic firms 'refused' increase supply. Assuming a world price that was equal to the price celing imposed, what would be the effect of this efficiency of the market and Its effect on the different market participants?
- You be requited to produce a 750 word written answer (absolute maximum of 750 words, penalties apply for going over the limit). It Is up to you how you present this, however, many questions will require a diagram, and so it would be expected that these would be reproduced with deatailed explanations od it. Where references to other material are used (articles, textbook etc), these need to be cited appropriately.
Needs to be 750 words. Also any effect in the diagram needs to be labeled A,B,C,D ect.... and explained at each point what is happening.