Background
Administered price refers to a price that is set through some form of administrative process rather than determined by the interaction of supply and demand in a free market. This price mechanism is often used as a tool for economic policy to achieve various social and economic objectives, such as preventing exorbitant rent or ensuring minimum wage levels.
Historical Context
The concept of administered pricing has been prevalent since ancient times, with examples dating back to Roman times, when grain prices were regulated. More systematically, administered prices emerged during the Great Depression of the 1930s and continued to be applied during wartime economies to stabilize markets and safeguard essential commodities.
Definitions and Concepts
Administered Price: A price set by an authorized entity, such as government or regulatory body, rather than by market forces. The authority can dictate either maximum or minimum prices, depending on the objectives to be achieved.
Major Analytical Frameworks
Classical Economics
In classical economics, the role of government intervention in setting prices is generally minimal as the focus is on the efficacy of free markets in resource allocation. Administered pricing stands in contrast to this ideal.
Neoclassical Economics
Neoclassical economists often scrutinize administered prices critically, arguing they create distortions and inefficiencies in the allocation of resources.
Keynesian Economics
Under Keynesian economics, administered prices might be supported as a policy tool to control inflation, stabilize incomes, or avoid unemployment, pursuant to efforts by government interventions in the economy.
Marxian Economics
In Marxian economics, administered prices can be viewed as tools of state control to achieve social objectives and to mitigate inequalities within a capitalist framework.
Institutional Economics
Institutional economists study how administered prices arise out of specific social, legal, and political contexts, emphasizing the non-market mechanisms that underpin economic systems.
Behavioral Economics
Behavioral economists might examine how administered prices affect decision-making and behavior of consumers and firms, accounting for difficulties in adhering to rational expectations.
Post-Keynesian Economics
Post-Keynesian economists support administered prices under certain conditions as measures to curtail market failures and to support full employment and fair income distribution strategies.
Austrian Economics
Austrian economists heavily criticize administered prices, seeing all forms of price control as distortions that inhibit the self-regulating nature of the market.
Development Economics
In the context of development economics, administered prices can be used as tools to promote agricultural development, control essential commodity prices, and stabilize income for low-income populations.
Monetarism
Monetarist policies typically eschew administered pricing due to the belief that money supply control is sufficient to regulate economic variables, and administered prices only add inefficiencies.
Comparative Analysis
Administered prices can be effective in achieving specific government objectives such as inflation control and social welfare. However, they can also lead to market distortions, supply shortages, and black market activities. Comparative evaluations often depend on the context in which administered prices are used, alongside the specific economic framework applied for appraisal.
Case Studies
- Rent Control in NYC: The implementation of rent controls to make housing affordable, balancing criticism on reduced incentives for landlords.
- Agricultural Price Supports in EU: Price supports ensure stable farmer incomes, sophisticated balance required to prevent surplus production.
- Minimum Wage Regulations globally: Different countries use minimum wage laws to prevent labor exploitation, their success varied amid diverse economic landscapes.
Suggested Books for Further Studies
- “Price Theory and Applications” by Steven E. Landsburg
- “Economics of Regulation and Antitrust” by W. Kip Viscusi, Joseph E. Harrington Jr., and John M. Vernon
- “Development Economics” by Gérard Roland
Related Terms with Definitions
- Price Ceilings: A maximum price set by law, below which prices cannot be charged.
- Price Floors: A minimum price set by law, above which prices cannot be charged.
- Subsidies: Financial assistance granted by the government to support economic sectors.
- Quantitative Restrictions: Limits imposed on the amount of a product that can be sold.
- Regulation: Actions undertaken by government to influence economic activities.
