Controlling the Prices of Essential Commodities

Essential commodities are products like rice, wheat etc which are required for everyday consumption. Since these commodities are consumed even by the poor, their pricing becomes very important. They should be priced in such a way that both the rich and the poor can buy them. Essential commodities are related to edible products on a major scale but it also includes items like soap, water etc.

 Pricing of essential commodities is very important. The government plays a major role in the pricing of these products. The government should ensure that all the people have equal access to these commodities and hence should price the products in such a way that it allows both the rich and the poor to buy them. The concept of equilibrium price plays an important role in price determination. The equilibrium in the market is determined by the interaction between market demand and market supply. Market demand refers to the quantity of commodity which the consumers are willing to buy and market supply refers to the quantity which the suppliers can sell.

When the product is sold at this price, more consumers will buy the product as market demand consists of the demand of both the rich and the poor. However, the government can fix a price which is suitable for the producers (support price) or it can fix a price which is preferred by the buyers (control price).

Support price (floor price) is the minimum price at which a commodity can be purchased by the consumers. It is higher than the equilibrium price and it is done in order to safeguard the interests of the producers (for example: farmers). Control price is the maximum price at which a commodity can be sold in the market. It is lower than the equilibrium price and it is done to safeguard the interests of the producers.

Other factors that influence the price of the commodity are inflation and recession. Inflation is an economic situation where the general price level in the economy goes up. This results in all products becoming costly. The prices during inflation are higher than the equilibrium price and hence in order to restore equilibrium, the prices will have to fall. Since the demand for essential commodities is INELASTIC, the consumers will have to buy the commodities at the prevailing prices but in this case the demand for the products goes down after a while which brings down the prices. Government intervention can also help reduce the inflationary pressure in the economy by reducing the prices of the commodities until normalcy is restored. Recession (excess demand) is an economic situation where the general price level in the economy falls. During times of recession, the producers will not produce up to their maximum capacity as the prices are low. Hence, the demand also starts falling and finally it become equal to the supply thereby restoring equilibrium.