Administered Prices: Meaning and How They Work?
An administered price is a price that is determined by policy makers, rather than by the forces of supply and demand in the market. These prices can be set by various authorities, including the government or regulatory agencies, and can affect both domestic market prices and producer prices.
Administered Prices: Meaning
Administered prices are prices that are set by the government or regulatory authorities to determine market prices. The aim of administered prices is to maintain price stability and control inflation in the economy. These prices can be set for various goods and services, including utilities, transportation, healthcare, education, and more.
Administered prices can be set either directly or indirectly. In direct administered pricing, the government or regulatory authorities set prices for goods and services. For example, the government can set prices for essential commodities like food grains, fuel, and electricity. In indirect administered pricing, the government uses policies like subsidies, taxes, and tariffs to influence market prices.
How Administered Prices Work?
Administered prices work by controlling market prices for certain goods and services. The authorities responsible for setting administered prices use a variety of tools to achieve this goal. These tools can include subsidies, price controls, taxes, tariffs, and other policies.
For example, a government may set a price ceiling on a particular commodity to prevent prices from rising too high. This can be done to prevent inflation and to ensure that essential goods and services remain affordable for all citizens. On the other hand, a government may also set a price floor on a commodity to ensure that producers receive a fair price for their products.
The Impact of Administered Prices
Administered prices can have a significant impact on the economy. While they can be useful in maintaining price stability and controlling inflation, they can also have unintended consequences. For example, price controls on essential commodities can result in shortages, as producers may not be able to afford to produce these goods at the government-set prices. This can lead to a black market and an increase in the prices of these goods on the black market.
Similarly, subsidies and tax policies can also have unintended consequences. Subsidies on certain goods and services can result in overproduction and waste, while tax policies can result in a decrease in consumer demand for certain goods and services.
