THE EFFECT OF THE STATE TO THE MARKET

In this article, My Economy Guide will clearly explain the basic prices , ceiling prices , taxes and subsidies used by governments to influence the markets . So you will be able to understand and learn many of the concepts that we hear in everyday life and that are related to the economy. In addition, our previous article, Economy and Competition Concept , will be a good source and basis for you to learn about the competition in the markets. 

WHY DOES THE STATE INTERVENE IN THE MARKET?

Society wants governments to intervene in the market and the economy, though not very often. However, this can easily lead to undesirable results. These well-intentioned interventions, which aim to düzelt correct situations that are deemed wrong ”, can have false consequences, since people cannot get rid of the consumption-related impulses that underlie their behavior. For this reason, governments should always consider the consumption behavior of society. In the markets, difficulties in supplying goods or inconvenience in pricing direct governments to intervene in the market. As a result of these situations, states activate base price and ceiling price application.

CEILING PRICE

The ceiling price refers to the maximum legal price established for a resource, good or service. However, this price application does not always give the desired result. It should not be forgotten that pricing in the markets is the result of human behavior and that prices formed as a result of supply-demand balance are ideal prices. The demand law states that the demand for consumption will decrease as prices increase and the demand for consumption will increase as prices decrease. The supply law states that producers will be more willing to produce when prices increase, and that producers’ demand for production will decrease when prices decrease.As an example, let’s examine the food market. In this market, a pound of tomatoes is 6 pounds, and consumers complain a lot about this situation and pressure on the government to apply the ceiling price suppose. As a result of this situation, the government enacts a law that the maximum weight of tomatoes can be 3 pounds. This ceiling price significantly reduces the producers’ demand for production and increases the consumer’s desire to consume. As a result, production decreases, and as a result of reduced production, consumers cannot find enough tomatoes on the market. In other words, as a result of this practice, tomatoes were 3 pounds, but many people could not buy tomatoes due to insufficient production.

MINIMUM PRICE

Only consumers do not want to influence the market without considering the principles of supply and demand. Producers may also ask the government to introduce base price. Base price refers to the minimum legal price established for a resource, good or service. For example, we can use the minimum wage. For the labor market, this equity is supplied by the households and demanded by the employers. We hear very often from politicians that the minimum wage should increase. As a result of this increase, it is assumed that the unskilled workforce in the workplaces will remain the same, thus gaining more of these employees. However, the balance of supply and demand is overlooked here. As a natural consequence of supply and demand, businesses will reduce the number of employees due to rising costs, and so many people will lose their jobs.The way politicians avoid this situation can be explained as follows. The equilibrium price as a result of supply and demand is generally higher than the minimum wage. The minimum wage increases, but the price does not reach the balance. Thus, working people can earn more money without their jobs.

Taxes are payments made by the state and required by the state. Subsidies are the support provided by the government for the purpose of encouragement. The government uses these tools not only to increase revenues, but also to direct people and shape markets.

TAX AND MARKET 

All governments have certainly used taxation. However, if we look at the relationship between tax and market, we can easily observe that the taxes are used for micro-economic purposes. The government, which wants to reduce the production of a product, increases the production costs of the producer by applying tax to the producer, and as a result of this cost the production of this product decreases as the government wants.One of the main objectives of the tax implementation is to increase the income of the state. For example, luxury excise tax does not affect the production or market of expensive products and services, but provides a significant income increase.Extra taxes are also applied to products such as cigarettes, alcohol, which are legal to use but considered to be inconvenient, and which are also highly useable. With these taxes, both the profit and the consumption of these products are tried to be reduced.

SUCCESS AND MARKET

States want to promote the production of a particular product or service by using subsidies. As a result of this application, the supply is increased and the price decreases. In particular, farmers and animal owners are subsidized. Thus, food production is kept higher and price advantage is provided in the export of these domestic products. The subsidy can be used not only to encourage production, but to encourage non-production. Thus, there is an unnatural decrease in production and an increase in prices as expected.While most subsidies are related to agriculture, the state can subsidize exporters. The aim is to strengthen exports and to make domestic producers more effective in international markets.With the subsidies made in the field of development, it is aimed to direct and place producers in a certain geographical area.Subsidies are not only made directly. Supports such as the elimination or reduction of tax debts and low-interest credit support are examples of indirect subsidies.

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