Bouquets And Brickbats Follow Government Decision

(Economic Analysis for Business Case Study)

Nikesh Dwa Roll No 13

Case Overview
- The government's decision and intention
- Set the MRP of 15 daily essential commodities - Aimed at providing relief to consumers hit hard by soaring prices

- The response
- A mixed reaction from consumer rights activists and the two leading business bodies NCC and FNCCI

Case Overview
- NCC's Response
- Defended the act as the government had held consultations with them - Need of the hour - A temporary measure to control abnormal price hike - Prices would be reviewed every week as per the demand and supply situation

Case Overview
- FNCCI's Response
- Demanded that the government roll back the decision - Against the principle of free market economy - Should let market determine the prices on the basis of demand and supply - Wrong way to control the market as it could lead to shortages

Case Overview
- Consumer Rights Activists' Response
- Accused the government of not holding consultations with them and not carrying out proper study on demand, supply, import prices and costs - Government also failed to better mobilize its trading arms STC, NTL and NFC to intervene the market - Lack of proper mechanisms to regulate the prices might lead to cartelling

Case Overview
- The Retailers
- Have agreed to implement the MRP as the wholesalers had agreed to offer goods at a lower price.

Economic Analysis
- The Government's Intention
- To provide relief to the consumers hit hard by soaring prices - To curb artificial price hike before the festive season

Economic Analysis

Price Supply

Price Ceiling

Pe

Equilibrium

Pc Shortage Qs Qe Qd

Price Ceiling Demand Quantity of Goods

Economic Analysis
- The probable effects of the price ceiling (MRP)
- Consumers get the daily essential commodities at a fair market price - Artificial price hike is controlled - Suppliers drop out of the market - Reduction in supply - Increase in demand - Reduction in quality

- Black market and cartelling

- Discrimination

Conclusion
- Pros
- Weekly review of the prices as per the demand and supply situation - Control of artificial price hike

- Cons
- Some customers get the goods at a lower price but others don't get it at all
- Shortage

- Existence of black market