3. Different price policy instruments can be
integrated into the market model and the
implications of such instruments have for the
formulated political objectives.
Sometimes, Government intervenes on price
formations, which results in a separate supply
price and domestic price for same good.
4.
5.
6. Government intervene through subsidization or
taxation of economic activities of production,
consumption and trade to reach certain target
prices on the domestic market.
Taxation of imports and subsidization of exports,
will lead to a domestic price above the world
market price, while subsidization of imports and
taxation of exports achieve the opposite effect.
From a domestic price obtained through taxation
and subsidization of trade, the supply price can
deviate through taxation or subsidization of
producers. Same principle applies for deviation of
the demand price from domestic price.
7.
8. ‘r’ shows how many percentage points the
domestic price is higher/lower than the
world market price.
‘s’ shows the percentage by which the
supply price deviate from the domestic
price benefitting producers.
‘v’ shows the percentage by which the
demand price deviate from the domestic
price benefitting consumers.
