Price controls

Press, Volume CXV, Issue 33957, 25 September 1975, Page 7

Price controls

At present the prices of many goods and services are fixed by the Government. Firms are told how much they may charge for something, or they are told what is the highest price they can charge. If someone wants to charge more, he must show that his product is costing more to make. Even then, the Government may not allow the priefe to rise enough to meet the extra cost of production and the maker will have to take up the difference out of his profits. This way, the Government is attempting to stop prices from rising any faster than can be helped, especially the prices of such essential things as food, Some people say that by controlling too many prices the Government upsets the supply and demand of things in New Zealand. If the profit on some goods and services is reduced

too far by price controls, they will not be made or offered for sale Almost no-one thinks that al! prices should be fixed by the Government: almost no-one thinks the price of everything should be free from all control. In between these extremes there is a great deal of difference of opinion about which prices should be fixed, who should fix them, and how high they, should be set If prices are too high, people stop buying and those who work in that industry may lose their jobs But if prices are too low, firms will not be able to pay their workers anyhow. High prices also make everyone attempt to get more money for the work they do: but every time someone is paid more money this increases the cost of producing something tor everyone else, and so adds to the increases in prices. . This process is called the inflation spiral. Wage demands are not the only cause of inflation. Other causes may be a shortage of raw materials, high prices on imported goods, and a rush on demand from consumers when the supply of goods cannot meet the demand.