The goverment should not control prices and wages.

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Introduction

The government has got various ways of dealing with income policy . One of the most extreme cases of dealing with income policy is by controlling of wages and prices . Price and wage controls are aimed at controlling inflation and business cycle . Some countries have a very centralized means of setting wages . In such cases , the country has the greatest degree of collective or public regulation dealing with prices and wage levels

The United States has been fixing the prices of various

commodities as far as from the World War I to date . Some of the areas that the government has been putting price tags include bread , gasoline , and rent . The government has also been fixing minimum wages to the employees in various sectors . At some instances , the government has been going as far as controlling the general level of prices and not only fixing specific prices . This system happens to have worked at some level , as happened in the world wars , during the war with the Koreans , and during the period of the Nixon administration . For instance

in the pre-war period , 1939-1942 , the consumer price index (CPI ) rose 17 .3 percent before controls were imposed . During the price control period , 1942-1945 , measured prices increased by only 10 .3 percent and in the immediate post war period , 1945-1948 , by 33 .7 per cent . The price regulators took much pride in these numbers (Timberlake 1993 , pp 305

Effects of Price Wage control

The main aim of price and wage controls by the government has always been to protect the interest of consumers and workers , although it has ended up hurting others , and failing to protect those targeted

For instance , by putting a ceiling price on bread , the government intended to protect the poor consumer who depended on bread for survival , rent price controls were aimed at protecting tenants when the demand for houses seemed to exceed supply , and thus landlords were using the case to exploit the tenants

Despite the goodwill the government has in undertaking price controls it is not a right move in the economic terms , as it leads to distortion of resource allocation . Economists may not know much , but they do know how to produce a surplus or shortage . Price ceilings , which prevent prices from exceeding a certain maximum cause shortages . Price floors which prohibit prices below a certain minimum , cause surpluses (Rockoff , 2002 , para 3 . For example in the case of bread , if the demand and supply are in balance with a given price , and the government puts a lower ceiling price , then of course the supply will reduce while the demand will increase . In this case , the end result will be high demand in the market while on the supplier side , there shall be a shortage . Only a few consumers will be able to get the commodity at the lower price while many of them will be forced to do without

This shortage of supply will automatically lead to another effect...