Overview§
An administered price is a price set by a governmental or nonmarket agency rather than being determined by market forces. This can be applied to both goods and services to achieve certain economic or social objectives such as controlling inflation, ensuring affordability, or preventing market monopolization. Common industries affected by administered pricing include healthcare, housing, and utilities.
Examples of Administered Prices§
- Rent Controls: A type of administered pricing where the government sets a maximum rent that can be charged for residential properties to make housing more affordable.
- Wage Price Controls: Government-set floors or ceilings on wages to control inflation or unemployment rates. This is often enacted during extraordinary circumstances such as wartime.
- Subsidized Healthcare Prices: Prices of healthcare services set or influenced by government subsidies to make healthcare accessible to more individuals.
- Agricultural Price Supports: Governments may set minimum prices for agricultural products to ensure farmers have stable and sufficient income.
Frequently Asked Questions (FAQs)§
What is the purpose of administered pricing?§
Administered pricing aims to intervene in the market to achieve various goals such as controlling inflation, ensuring fair wages, making essential goods affordable, and stabilizing an economy.
How does administered pricing differ from market pricing?§
Administered pricing is set by a governmental or nonmarket agency, whereas market pricing is determined by supply and demand dynamics.
Are administered prices effective?§
The effectiveness of administered prices can vary. They can achieve equitable access or affordability, but can also lead to market inefficiencies or shortages if mismanaged.
What are some common criticisms of administered prices?§
Critics argue that administered prices can distort market signals, lead to shortages, and reduce incentives for producers to innovate or improve efficiency.
Can administered pricing exist in a free-market economy?§
Yes, administered pricing can coexist with market pricing, especially in mixed economies where the government regulates certain sectors while free market principles operate in others.
Related Terms§
- Price Ceiling: A maximum price set by the government for a particular good or service.
- Price Floor: A minimum price set by the government for a particular good or service.
- Subsidy: Financial assistance provided by the government to lower the cost of a good or service to benefit the public.
- Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power.
- Market Equilibrium: The state where the supply of a good matches its demand.
Online References§
- Investopedia: Price Ceiling
- Wikipedia: Price Control
- The Balance: Advantages and Disadvantages of Rent Control
Suggested Books for Further Studies§
- “Economics: Principles, Problems, and Policies” by Campbell McConnell, Stanley Brue, and Sean Flynn
- “Microeconomics: Theory and Applications” by Edwin Mansfield, Gary Yohe
- “Principles of Macroeconomics” by N. Gregory Mankiw
- “Price Theory and Applications” by Steven E. Landsburg
Fundamentals of Administered Price: Economics Basics Quiz§
Thank you for exploring the concept of administered prices with us. Understanding the impact of such policies helps grasp their role in various economic environments!
