how does an economy achive market equilibrium and why government intervention?

Question

the government of zimbabwe recently slashed fuel prices from seven thousand to three thousand. what was the reason for this?

Answer 1

Markets reach equilibrium by allowing buyers and sellers to act in their own self interest. Government controlled prices break the linkage between buyer and seller and unless capable of reading minds cannot correctly estimate equilibrium prices. Why Zimbabwe did this is unknown to me. It is likely in an announcement somewhere.

Most likely it is a political response to internal anger.

Price in a free market serves as its rationing and allocation process. Some people get no fuel at all, some can pay for far more than they need. Governments control prices either out of a mistaken sense of fairness to the members who can least afford it OR as a mechanism to control the populace.

Unfortunately, what really occurs are distortions in the economy that are of greater damage than had the poorest members not been permitted to purchase fuel.

In the United States, where buyer meets seller in an open fuel market, the problem is resolved largely by charity and industry supported services to protect the poorest people. The poorest people are still poor, but they have sufficient resources to survive.

The US tried fuel price controls once and it was devastating to our economy.