Trade Ministry sets wholesale price ceiling for

in-demand vegetables, eggs

Decision comes after ministry shuts down shops over unfair

pricing By JT - Mar 28,2020 - Last updated at Mar 28,2020

AMMAN — The
Ministry of Industry,
Trade and Supply has
set
wholesale price ceilings
for the vegetables most
in-demand in the
market
due to “exploitation
and
deception by certain
merchants”, according
to
Trade Minister Tareq
Hammouri.

Although Hammouri, in
cooperation with
Minister of Agriculture
Ibrahim Shahahdeh, had set price ceilings for retail selling prices for the same varieties of vegetables
last week, the decision to further regulate prices at the wholesale level was made “to ensure that they
are ultimately provided to citizens at acceptable selling prices”.

In a statement, Hammouri said that the ministry “found that there has been an unreasonable and
unjustified surge in prices from some wholesalers”, adding in a press conference on Friday that the
ministry has shut down over 100 shops due to similar violations.

The price ceilings that the ministry had previously set for vegetables at the retail level are still in
place, according to the minister, who stressed that these new measures aim to “redress the imbalance
in all stages of the supply chain”.

Campaigns to intensify supervision of markets are ongoing, Hammouri said, adding that “the ministry
does not aim, through its monitoring tours, to close shops. However, the necessity of providing goods
to citizens at reasonable prices at this time is a top priority, and there will be no tolerance for anyone
who tries to take advantage of citizens”.

The wholesale price ceilings for the vegetables most in-demand are, per kilogramme: 35 piasters for
potatoes, 30 piasters for tomatoes, 40 piasters for cucumbers, 55 piasters for zucchinis, 30 piasters for
eggplants and 40 piasters for dry onions.

Last week, retail price ceilings for these vegetables per kilogramme were 45 piasters for potatoes, 40
piasters for tomatoes, 50 piasters for cucumbers, 65 piasters for zucchinis, 40 piasters for eggplants
and 50 piasters for dry onions.

It was also mandated that the retail price for two kilogrammes of fresh chicken be set at JD1.40 and
for frozen chicken at JD1.70.

The ministry also decided to set price ceilings for packages of eggs holding 30 eggs. According to the
decision, the price for 2,000 grammes of table eggs and above is JD2.50 and JD2.25 for less than
2,000 grammes, the Jordan News Agency, Petra, reported.
 Microeconomics Commentary

This article involves the imposition of a price ceiling for vegetables by the Jordanian government at
the wholesale level to stop an "unjustified surge in prices from some wholesalers". Vegetables are
primary commodities as they arise directly from land, a factor of production. Therefore, they are
highly-price inelastic in demand because they are necessities and have few substitutes. This makes
vegetables highly price volatile as suppliers can rapidly increase prices to generate more revenue.
Thus, a legally fixed price ceiling for vegetables such as 30 piasters for tomatoes is set below the
market equilibrium.

Figure 1- Tomato Price Ceiling in Jordan and Market Outcome

Figure 1 displays the effect of a price ceiling at price Pe on the market of tomatoes. The initial
equilibrium quantity is Qe, at 40 piasters. However, the 30 piaster price ceiling lowers price to Pc, below
the equilibrium price, Pe. At Pc, the quantity of tomatoes demanded increases as vegetables are primary
commodities. This ensures that tomatoes are "provided to citizens at acceptable selling prices". The
corresponding quantity that suppliers are willing to supply, Qs, is less than the equilibrium quantity, Qe,
at 40 piasters. By selling tomatoes at Pc, producer revenue decreases from "Pe⋅Qe" to "Pc⋅Qs".
Consequently, suppliers are less willing to supply tomatoes at Qe as it is less profitable, causing output
to decrease to Qs. Therefore, the quantity demanded (Qd) is higher than the quantity supplied (Qs) at 30
piasters, hence excess demand. The quantity demanded exceeds the quantity supplied by the distance
between Qd and Qs.
 Figure 2- Tomatoes Price Ceiling in Jordan and Welfare Impact2

Figure 2 describes the tomato welfare impact of a price ceiling. Without a price ceiling, the marginal
benefits (MB) equals the marginal costs (MS) to society at 40 piasters and Qe, and there is allocative
efficiency. The price ceiling re-allocates welfare from producers to the consumers of tomatoes, hence
the overall net effect on community surplus is negative. The MB exceeds MC at the new point of
production (Qs), the benefits consumers derive from tomatoes are greater than the marginal cost of
producing tomatoes. Thus, there is welfare loss from allocative inefficiency where society is not
receiving enough tomatoes as there is an under allocation of resources.

One of the disadvantages is that producers are worse off as they sell fewer units of tomatoes. Over time
some suppliers leave the market as they have insufficient willingness or ability to sell the quantity of
tomatoes determined by the price ceiling. Additionally, workers are worse off. Since suppliers are
unable to cover their costs of producing tomatoes from lower revenue, suppliers will reduce the
quantity of their factors of production, including labour causing unemployment. One of the benefits of
the price ceiling is to consumers who are only partly better off. Those who buy tomatoes at more
"reasonable prices" enjoy a lower price, "A+C". However, at Pc, there are not enough tomatoes to
satisfy all demanders. Since there is excess demand, being willing and able to pay 30 piasters would
not guarantee that all consumers buying tomatoes will receive it. Therefore, there is welfare loss
"B+D" which represents the financial and labour loss to society. It consists of consumers not enjoying
benefits from lowered pricing, "B", and suppliers who have reduced revenue and are unable to provide
job opportunities for workers, "D".
However, the government is positively affected. Since vegetables are "in high demand", the price
ceiling will increase the Jordanian government's popularity as tomatoes are more affordable for
citizens.

We must also consider the short and long-run implications. In the long run, suppliers are able to
respond with a proportionate decrease in the quantity supplied with enough time. However, in the
short run, suppliers cannot respond with a proportionate decrease in quantity supplied as it takes time
to grow and re-allocate tomatoes to Pc. Since there is allocative inefficiency, the price mechanism is
no longer a distribution method at Pc. Consequently, non-price rationing methods are used including;
first come first serve principle and seller favouritism. A potential consequence is the emergence of the
parallel market. Here, suppliers sell tomatoes above Pc to generate higher revenues. These are bought
by consumers not enjoying benefits who are willing to purchase tomatoes above Pc from the excess
demand.

Even though lower prices would cause the allocative inefficiency and a parallel market, the benefits
outweigh the costs of imposing the price ceiling since "providing goods to citizens at reasonable prices
at this time is a top priority". The market would eventually reach equilibrium again in the long run and
vegetables would be re-allocated at the price ceiling.

[WORD COUNT: 749]

Work Cited List
Blink, Jocelyn, et al. Economics: Course Companion. 2nd ed., Oxford, Oxford University Press, Cop,
2012.

JT. "India Announces $266Bn Stimulus To Revive Coronavirus-Hit Economy". The National, 28
Mar. 2020, https://www.jordantimes.com. Accessed 18 May 2020.
Bloomberg May 13, 2020

India announces $266bn stimulus to revive

coronavirus-hit economy
► The finance ministry will start unveiling details of the package amounting to 10% of GDP from
Wednesday

A migrant worker along with his family members rides on a cart, amid the ongoing Covid-19 coronavirus emergency
lockdown in India. The government on Tuesday announced a $266bn stimulus package to support the country's
economy. EPA

Indian Prime Minister Narendra Modi said his government will spend a total of 20 trillion rupees
(Dh976 billion / $266bn) to help Asia’s third-largest economy weather the fallout of the
coronavirus pandemic.

The package amounting to 10 per cent of the nation’s gross domestic product will help the
economy get back on its feet after weeks of stay-at-home restrictions, Mr Modi said in a televised
address to the nation on Tuesday, without giving details. The figure announced by Mr Modi will
include more than 5.5 trillion rupees of measures already unveiled by the government and the
central bank.

“This economic package will be a crucial link in the creation of a self-reliant India,” Mr Modi
said, adding that the finance ministry will unveil details from Wednesday. “It will focus on areas
like land, labor, liquidity and law.” The spending plan coupled with proposed tax breaks for new
plants and incentives for overseas companies is an attempt by Mr Modi’s administration to lure
investors and stop
the coronavirus pandemic from wrecking the economy. India is hurtling towards its first full-year
contraction in four decades. An estimated 122 million people lost their jobs in April while
consumer demand has evaporated.

“The package is an announced intention with no details,” said Nilanjan Mukhopadhyay, who has
written Mr Modi’s biography. “The effort is to ensure that the attention is not so much on the virus
but steps that the government is taking. The strategy seems to be to control the headline.”

Mr Modi has also come under criticism on the pain inflicted on India’s poor due to the sustained
lockdown since March-end. In the past few days, the movement of millions of migrant workers
from the cities where they had jobs to their homes in rural villages – and their reluctance to return
– have dominated news.

Meanwhile, companies have been urging the government for weeks to increase support measures.
While Hero MotoCorp, India’s top motorcycle maker, had sought a “suitable stimulus package”,
lobby group Associated Chambers of Commerce and Industry of India wanted at least a $300bn
package.

The announcement, which came after market hours helped boost SGX Nifty futures 4 per cent.
Bond yields may rise on fears of a higher budget gap due to the economic package.

“The magnitude of the package is bigger than expected,” said Abhimanyu Sofat, head of research
at IIFL Securities. “The funding of this huge amount is now the key focus and bonds may see
sharp reaction.” The Reserve Bank of India has since March injected more than $50bn into
India’s economy, or over 3.2 per cent of GDP, while finance minister Nirmala Sitharaman had
offered $22.5bn of aid on March 26.

Mr Modi’s latest announcement came a day after he met through video conference state chief
ministers. “We have a two fold challenge – to reduce the transmission rate of the disease and to
increase public activity gradually, while adhering to all the guidelines,” Mr Modi said after
Monday's meeting.

The country will enter the fourth phase of a lockdown with new rules which will be announced by
May 18, Mr Modi said on Tuesday.

By opening more of the economy while continuing to lock down Covid-19 hot spots, the
government hopes to ease the economic impact of the world’s biggest social distancing exercise,
which has crippled business activity and left millions jobless.

Elsewhere, Japan’s fiscal support stands at more than 20 per cent of GDP, while Singapore, Hong
Kong and Australia have each rolled out spending amounting to 10 per cent or more of GDP.
Infections are surging across the South Asian nation of 1.3 billion people, with number of
confirmed cases nearly doubling since the beginning of May to 71,441 cases, including 2,310
deaths, according to data from Johns Hopkins University.

Some restrictions were eased on April 20 to allow farmers and industries to resume
operations in rural areas and in districts that were free of infections.

Still, companies are facing difficulties reopening factories – primarily because of travel
restrictions, conflicting rules, broken supply chains and a shortage of workers.

The country meanwhile has started running special trains to take stranded workers to their homes.
Indian Railways also partially resumed passenger train operations from Tuesday, nearly two months
after the services were stopped.

“The uncertainty we still have in terms of how the lockdown will look from May 18,” said Indranil
Pan, chief economist at IDFC First Bank. “So 20 trillion rupees is on the table, but if the lockdown
continues for some more time, we have to see whether” the money will be released immediately or
in phases, he said.

Updated: May 13, 2020 10:51 AM

 Macroeconomics Commentary

This article explains Narendra Modi's plan to help the Indian "economy weather the fallout of the
coronavirus pandemic" through an expansionary fiscal policy with plans of increasing government
expenditure by 266 billion rupees. This aims to increase employment for the "122 million" loss of
jobs and will be facilitated with additional tax reductions. India's unemployment is cyclical
occurring from demand-deficient aggregate demand (AD), where AD is calculated through the
expression:
Consumption (C) + Investment (I) + Government Expenditure (G) + Net Exports (X-M)

Figure 1- Indian Economy in a Deflationary Gap

With sustained lockdown since March-end, firms had "difficulties reopening factories – primarily
because of travel restrictions". Hence, firms have been pessimistic about future sales before the
expansionary fiscal spending as they expect a decrease in future net profits, causing a decrease in
investment. Additionally, a "a shortage of workers" had reduced household incomes as fewer
individuals were available for work. Households had less income to spend on goods and services,
decreasing consumption. Being a component of AD, decreased investment and consumption deterred
AD causing a leftward shift from AD1 to AD2 in Figure 1, creating a deflationary gap. At AD2, the
economy operated at Yrec indicating allocative inefficiency and the average price level (APL) is at
APLrec. Consequently, the quantity supplied by producers was below the potential output. The lower
AD decreased the total quantity of real output bought, thus, firms' cost of production exceeded their
revenues, making it not worthwhile to supply at Y p.
Hence, at the low real output, Yrec, suppliers require less labour than at Yp, causing unemployment to
be greater than the natural rate of unemployment.

Figure 2- The Effect of Expansionary Fiscal Policy in India

Being a component of AD, an increase in government spending would have an expansionary effect on
the Indian economy as an injection would lead to an increase in the overall level of economic
activity. In Figure 2, this causes a rightward shift from AD2 to AD3 which increases real output from
Yrec to Yp, and APL from APLrec to APLp. To meet this increased demand, AD3, and generate more
revenue, firms employ more labour and unemployment decreases. One advantage of fiscal policy is
the increase in real GDP, which is a metric for the standard of living. Hence, the increased real GDP
is beneficial as it implies increased standards of living in India. Additionally, the fiscal policy
spending’s are targeted towards land and labour which generate more jobs and resources, increasing
the quantity of labour and output. Another advantage is the "proposed tax breaks'' towards foreign
investors, suggesting an increase in firms' after-tax profits. This "incentivizes...overseas companies''
to invest in Indian assets, one of the determinants of AD which leads to a further increased AD.

However, the theory behind Figure 2 may be incorrect as firms "wanted at least a $300bn package".
With insufficient government spending, fewer firms will be willing to invest in real output.
Unemployment in India would not decrease, which means that AD has not increased as Figure 2
stipulates. The reduced tax has additionally creates "fears of a higher budget gap". With the spending
plan being coupled with a tax break, government tax revenues would be reduced. The government
would have to borrow money from the loanable funds market as its fiscal spending exceeds its
revenues. This causes money in the Indian banking system to become scarcer, therefore, the interest
rates in the economy would rise. The cost of borrowing increases leading to less investment as firms
choose to spend profits on repaying debt in the long run. The expansionary fiscal policy would be
weakened since increased government spending is counteracted with decreased investment by firms.
Additionally, the APL increases from APLrec to APLp, a proportionately greater increase than real
GDP, indicates the potential consequence of accelerating inflation if this policy is implemented. The
multiplier effect may exacerbate inflation in India as increased government spending causes a larger
change in income and increased consumption, which shifts AD3 to AD4. The resulting equilibrium at
full employment creates further inflationary pressure by increasing APL p to APL 1 in Figure 2.

Although the expansionary fiscal policy accelerates economic growth and increases employment, its
inflationary consequences have a detrimental effect on stakeholders in India. The uncertainty from
inflation, coupled with higher interest rates, discourages the private sector from investing. The policy
may create jobs to increase disposable incomes, however, living standards may deteriorate instead if
the APL increases faster than incomes, causing Narendra Modi's plan to be counter-productive in the
short and long run. The fiscal policy will have an intended effect to only a partial extent.

[WORD COUNT: 747]

Work Cited List

Blink, Jocelyn, et al. Economics: Course Companion. 2nd ed., Oxford, Oxford University Press,
Cop, 2012.

"India Announces $266Bn Stimulus To Revive Coronavirus-Hit Economy". The National,

2020, https://www.thenationalnews.com. Accessed 13 May 2020.
Trump reimposes tariffs on raw Canadian
aluminum, Canada promises retaliation
By Jeff Mason, Julie Gordon 5 Min Read

CLYDE, Ohio/OTTAWA (Reuters) - President Donald Trump on Thursday moved to reimpose 10%
tariffs on some Canadian aluminum products to protect U.S. industry from a “surge” in imports,
angering Ottawa and some U.S. business groups.

U.S. President Donald Trump wears a protective face mask due to the
coronavirus disease (COVID-19) pandemic as he talks with workers while
touring a Whirlpool Corporation washing machine factory as U.S. Rep. Jim
Jordan (R-OH), also wearing a mask, looks on in Clyde, Ohio, U.S., August
6, 2020. REUTERS/Joshua Roberts

Canada pledged retaliation as tensions heightened between the close allies just weeks after a new
continental trade deal between the United States, Mexico and Canada came into effect.

During a speech at a Whirlpool Corp washing machine factory in Ohio to tout his “America First”
trade agenda, Trump said he signed a proclamation reimposing the “Section 232” national security
tariffs. The step was “absolutely necessary to defend our aluminum industry,” he said.

Ohio is a critical swing state that Trump won in 2016. Polling shows a tight race with Democrat Joe
Biden in the state ahead of this year’s Nov. 3 presidential election.
Trump trails the former vice president in national polls and is competing with him for blue-collar
working class voters. The tariff announcement could be aimed at showing those voters he intends to
fight for their jobs and upend trade policy further if he remains in office.

But some prominent business groups criticized the move as counterproductive and unhelpful to U.S.
interests.

The U.S. Trade Representative’s office said the 10% tariffs apply to raw, un-alloyed aluminum
produced at smelters. The tariffs do not apply to downstream aluminum products.

“Several months ago, my administration agreed to lift those tariffs in return for a promise from the
Canadian government that its aluminum industry would not flood our country with exports and kill all
our aluminum jobs, which is exactly what they’ve done,” Trump said. “Canadian aluminum producers
have broken their commitment.”

Canada has a natural advantage in primary aluminum production because of its ample supply of
hydroelectric power.

Canadian Deputy Prime Minister Chrystia Freeland said the tariffs would hurt workers and regional
economies already hit by the coronavirus pandemic and pledged Ottawa would retaliate as it had done
in 2018, when Trump first imposed punitive measures on Canadian steel and aluminum.

“In response to the American tariffs, Canada intends to swiftly impose dollar-for-dollar
countermeasures,” Freeland said in a statement.

Freeland - in overall charge of relations with the United States - will formally respond to the tariffs at
11 am (1500 GMT) on Friday, her office said in a statement.

Rio Tinto, Canada’s largest aluminum producer, said the tariffs are “unfortunate” as they only increase
prices for U.S. consumers and undermine market confidence in secure supplies of aluminium in North
America.

“We are working with our U.S. customers to minimize any negative impacts to the integrated supply
of aluminium in North America,” a Rio Tinto spokesman said.

In 2018, Canada slapped tariffs on C$16.6 billion ($12.5 billion) worth of American goods ranging
from bourbon to ketchup. Trump lifted the sanctions in 2019.

Trump peppered his remarks with criticism of Biden and predicted “depression time” if the Democrat
won, higher taxes and put more regulations.

“To be a strong nation, America must be a manufacturing nation and not be led by a bunch of fools.
That means protecting our national industrial base,” Trump said.

Trump has sparred with close U.S. allies over trade throughout his presidency.
The U.S. Chamber of Commerce called the move “a step in the wrong direction” that would raise
costs on companies and consumers.
The Aluminum Association, which says it represents companies that produce 70% of the aluminum
and aluminum products shipped in North America, said the move undermined the new U.S.-Mexico
Canada trade agreement at a time when domestic demand was already down nearly 25% year-to-date.

Michael Bless, chief executive of Century Aluminum, one of the few remaining U.S. primary
aluminum smelting companies and which lobbied for the tariffs, said the move “helps to secure
continued domestic production of this vital strategic material”.

Reporting by Jeff Mason, Andrea Shalal and David Lawder in Washington and Julie Gordon and
David Ljunggren in Ottawa and Ernie Scheyder in Houston; Writing by David Lawder and Jeff
Mason; Editing by Leslie Adler, Tom Brown and Daniel Wallis
 International Economics Commentary

This article presents the U.S. government's decision to reimpose an aluminum tariff on imports from
Canada. The purpose of the tariff is "to protect [the] U.S. industry from a surge in imports" from
cheaper Canadian imports as they threaten U.S. aluminium jobs. Therefore, the U.S. has retaken
protectionist measures with "10% tariffs on some Canadian aluminum products".

Figure 1- Effects of Reimposing a 10% Tariff on Canadian Aluminum Imports

Initially, the world supply of aluminum was SCANADA at PCANADA. Canadian producers have a
comparative "natural advantage in primary aluminium production", hence they supply aluminum at a
lower price than U.S. firms. As the world price is PCANADA under free trade, U.S. producers must
supply aluminum at PCANADA to remain competitive. Therefore, the quantity of aluminum supplied in
the U.S. was Q1 and Q4 was the quantity demanded. As fewer U.S. producers were willing and able to
supply aluminum at PCANADA than the quantity demanded, there was an excess demand (Q4-Q1)
fulfilled by Canadian imports. As the 10% tariff is reimposed, the production costs of Canadian
producers increases which decreases their aluminum supply. This shifts the world supply curve by
the value of the tariff from SCANADA to SCANADA+t, raising the price of imported and US aluminum
from PCANADA to PCANADA+t by 10%. The higher price incentivises U.S. producers to increase
production from Q1 to Q2 to generate higher revenue and decreases U.S. consumption of aluminum
from Q4 to Q3. Consumers may replace aluminum with cheaper substitutes like steel to maximise
utility at the lowest possible price. Consequently, imports and excess demand decrease from Q4-Q1 to
Q3-Q2.

One advantage of the tariff is that the U.S. government earns tariff revenue (F), which may increase
living standards if the government allocates its higher tax revenues to unemployment benefits for
those who lost their jobs as a result of COVID. Additionally, the tariff protects U.S. firms as import
prices are inflated, meaning that U.S. consumers buy more aluminium from U.S. firms than Canadian
imports. Therefore, U.S. firms benefit as they supply aluminum at a higher price (PCANADA+t) and
quantity (Q2), increasing producer surplus from C to B+C and revenue from Q1∙PCANADA to
Q2∙PCANADA+t. This increases the profits of U.S. producers, allowing them to invest and increase their
efficiency and international competitiveness. The tariff additionally increases employment in the U.S.
because the demand for labour increases to meet the local aluminum demand. This increases worker
incomes and potentially raises consumption by U.S. households. Increased consumption, government
spending and lower imports (thus higher net exports) stimulate aggregate demand with an
expansionary effect on the US economy, causing further economic growth.

However, aluminum is a raw material that is imported and used in the production of many appliances.
As the tariff is implemented, import inflation occurs as Canadian firms compensate for their higher
cost for importing aluminum by increasing their prices. This "increase[s] prices for U.S. consumers''
and limits consumer product choice, decreasing consumer surplus from A+B+D+E+F+G to A+D.
The production cost of U.S. firms dependent on aluminum imports also increases. Hence, U.S.
unemployment rises as producers reduce labour to counteract increased production costs.
Furthermore, the tariff is regressive which worsens U.S. income distribution because lower-income
consumers are affected proportionately more than higher incomes. The tariff will additionally "hurt
workers and regional economies" in Canada by reducing Canadian export competitiveness due to the
higher price. This reduces Canadian exports from Q4-Q1 to Q3-Q2, thereby decreasing their export
revenue from Q1∙a∙d∙Q4 to b∙Q2∙c∙Q3. This invites retaliation as "Canada intends to swiftly impose
dollar-for-dollar countermeasures''. If tariffs are used in retaliation, advantages to the U.S. will be
temporary. Since the drop-in consumer surplus (B+E+F+G) is greater than the gain in government
revenue and producer surplus (B+F), the U.S. is worse off from the tariff with a welfare loss (E+G).
G is due to the less consumption (Q4-Q3), and B represents increased inefficiency; aluminum
production increases for inefficient U.S. firms while decreasing for Canadian firms with a
comparative advantage. This results in a global misallocation of aluminum.
In summary, the protectionist tariff has short-term benefits because it preserves employment in the
U.S. aluminum industry, promotes economic growth and generates government revenue. Even so, the
tariff's long-term disadvantages outweigh its benefits, as it breeds inefficiencies in production and
worsens relations between countries, leading to trade wars.

[WORD COUNT: 748]

Work Cited List
Blink, Jocelyn, et al. Economics: Course Companion. 2nd ed., Oxford, Oxford University Press, Cop,
2012.

Gordon, Julie Gordon, and Jeff Mason. "Trump Reimposes Tariffs on Raw Canadian Aluminum,
Canada Promises Retaliation". REUTERS, 2020, https://www.reuters.com/article/us-usa
trade-canada-aluminum/trump-reimposes-tariffs-on-raw-canadian-aluminum-says-needs-to
defend-u-s-industry-idUSKCN2523A3. Accessed 20 Mar 2021.