State regulation of prices

Can the state intervene in the pricing policy of a market economy? The answer to this question will be positive, but several important points should be clarified. State regulation of prices should be provided only where it is necessary. In other areas, a freely functioning market mechanism will be optimal . In this article, we will try to explain the goals and mechanisms of state intervention in pricing policy.

As you know, the market economy does not develop as spontaneously as it seems. Sometimes it is adjusted in order to more effectively cope with its main tasks. So, we list the goals of state regulation:

• In some areas of the economy there is a natural monopoly. In these cases, free competition is ineffective, and sometimes completely impossible. To ensure that competitors of natural monopolies do not raise prices, the cost of goods and services is set at the state level. Thus, inflation is reduced, and optimal conditions are created for stable economic growth. It is worth noting that the areas of natural monopolies are fixed in federal laws;
• State price regulation is necessary to reduce social tension;
• Such a measure contributes to the strengthening of national competitiveness in international markets;
• There is a stimulation of various upgrades;
• The main goal is to stabilize social structures and optimize the development of the country in the economic sphere.

State regulation of prices is usually applied in such areas as mail, "excise" goods, telegraphs, customs policy, railway services, taxation, medicine. Indirectly touched upon such areas as lending, subsidies.

There are different mechanisms for regulating the economy. Let's try to list the main ones:

• Observation by special bodies. The goal is to increase the cost of the consumer basket in order to determine the index of nominal growth in pensions and wages;
• Indirect influence. For example, customs restrictions are abolished or introduced, taxation is changing;
• Interference in the process. The state authorizes the growth of production costs. This measure is inevitably followed by an increase in prices;
• Influence on the cost of services and goods in the areas of natural monopolies. Similarly, the state sets prices in those areas where it is the main buyer. For example, this is construction, goods for the army, weapons;
• Direct impact. In particular, these are government subsidies, which significantly reduce production costs. Consequently, the growth of prices slows down or stops altogether. In addition, there is a government policy that directly affects the value of "excisable goods", which are subject to an indirect tax ;
• Influence on foreign trade prices. Carried out by reducing or exempting from taxes or providing special loans and subsidies;
• Fixed preferential prices for products produced in the economy sector owned by the state. For example, this is energy, postal and telegraphic and railway tariffs;
• State regulation of prices can be manifested in the form of setting limits on the increase in the cost of production. Such a mechanism is used only in extreme cases, for example, with exacerbation of tension in society;
• Transfer of control over prices to international bodies. For example, the establishment of the value of ferrous metals by the European Association of Steel and Coal, the fixation of prices for agricultural products in the European Community.