Why could imposing a price ceiling on wheat only make matters worse?

Question

There is a shortage of wheat in the country and facts to be considered are: How will farmers react?
What will happen to labour? How the population will react?
And what will the government do?

Answer 1

Let's say there is a shortage of wheat, and prices are going up.
What would a price ceiling do? The price ceiling may make importing wheat not worthwhile at the ceiling price, and prolong the shortage. But to the extent that there are supplies of wheat not yet consumed, the price ceiling might encourage use of existing stocks at less than the most necessary uses, depleting the stocks faster than if the price was allowed to continue to rise. Further, if the ceiling was not removed in short order, it might discourage farmers from planting, which would continue the shortage.
If the price is allowed to rise, farmers would have a greater incentive to plant wheat, which would increase supply. The higher price also encourages imports, increasing supply.
Labour, well, they will likely eat less wheat bread.
The population might call for cheaper bread, but for all the reasons listed, a price ceiling would more likely make matters worse than help, at least in the long term.
The government will as likely do the wrong thing as the right thing. Ideally, they would offer short term incentives to increase the supply of wheat, tax breaks on the importation and sale of wheat, but just for imports and sales occuring in the next six months (or however long it takes for a new crop to arrive on the market). But this would be seen as unpopular, because with prices so high, the people selling also get a tax break, making excessive profits. So instead, the government will do something far less than ideal. Perhaps offer the tax breaks in conjunction with a price ceiling, or perhaps the government could import wheat itself and distribute at a less than market price in order to keep the price- in fact, I think I like that better.

Answer 2

In a capitalist society shortage of wheat would cause prices to rise which would cause farmers to plant more wheat that would lower prices. If you imposed a price ceiling farmers would not be motivated to plant more wheat so shortages would remain. There could in fact be negative pressure on planting wheat if the ceiling were low enough, causing even more pricing pressure. The government would then need to require farmers to plant more wheat creating a totally government run market, which never works. That why they had bread lines in Russia.

Answer 3

the forces of demand and supply are suppose to determine the price all the times, that is to say if the demand is high price must increase and also if the supply is high the price too must fall this gives an invisible hand to regulate economic activities in an economy. the moment we directly intervine and put a ceiling then black markets will emerge and we will see more problems than under the operation of the invisible hand.

suppliers and in this case farmers produce to make profit which means for a higher price more will be produced and the opposite is true for a less price therefore a ceiling will lead to reduced wheat production.

Answer 4

The government shouldn't do anything. We need to stop planting corn because ethanol isn't going to help this country. And all the idiot politicians pandering to Iowa and the like are trying to push central planning. We then plant wheat where the corn was and farmers stay in business. More supply with the same demand lowers the price.

Answer 5

Imposing a price ceiling would only make matters worse for those who haven't done their homework last night.