ECON1012 Principles of Economics Semester 1 2024

Assignment 2

ECON1012 Principles of Economics Semester  1 2024

Course Learning Outcomes: 1, 2, 3, 4 & 5

Topic/s of Primary Focus:    Government Intervention in Markets

(May also include content from previous topics.)

Read the following article from the Nikkei Asia ‘ Philippines' Marcos announces cap on rice prices’ (1 September 2023)

https://asia.nikkei.com/Economy/Philippines-Marcos-announces-cap-on-rice-prices

The Philippines has imposed caps on rice prices in a bid to arrest surging costs caused by supply shortages, but analysts warn the intervention could fail to stem rising food   expenses.

The office of President Ferdinand Marcos Jr. announced the move on Friday, following recommendations from the agriculture and trade departments. The price ceiling, which will remain in effect indefinitely, mandates a maximum price of 41 pesos ($0.72) per kilo for regular milled rice and 45 pesos ($0.79) for well-milled rice.

Prices of rice, a food staple in households across Asia, have been volatile in recent months due to extreme weather such as floods and heat waves. India, the world's largest rice exporter, has moved to restrict exports of non-basmati white rice while Thailand has rushed to shore up supplies.

Exports from Vietnam, the world's third-largest rice exporter, are skyrocketing to meet demand across the region. Some 90% of the Philippines' rice imports in 2022 came from Vietnam.

The government's intervention in rice prices comes amid decelerating consumer price growth across the country, with headline inflation slowing to 4.7% in July. Nevertheless, inflation of rice prices hit 4.2% in July this year from 1.0% in January 2022. Such high price tags disproportionately hit poor households that spend large portions of their income on food.

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, argues that an official price cap is not a long-term solution to the problem of rising food costs.

"Setting of price caps in most cases may put a temporary ceiling on prices. However, such hard caps may result in the emergence of inefficiencies with regard to supply and demand, which may result in shadow or black-market trading," Mapa told Nikkei Asia.

This is the first time that Marcos imposed a price ceiling on rice since his election victory in May 2022. The son of the late dictator also serves as the country's agriculture chief.

Soaring prices of commodities are nothing new for the Philippines, as the reopening of the domestic economy in 2022 following the coronavirus pandemic revived consumer demand and pushed up prices due to pent-up demand. Staple items such as onions recorded price increases in the past year.

Leonardo Lanzona, an economist at Ateneo De Manila University in the Philippines, said the move to cap rice prices could prove "disastrous to both farmers and traders."

In the past, price caps have "resulted in greater costs to the government. Its immediate effect is to pull down production and reduce supplies in the market," he said.

"Prices will stay at the cap but unless more subsidies are provided, the long lines for rice which we last saw in the first Marcos administration will begin to sprout again," Lanzona told Nikkei.

Grading

The assignment will be graded against the Assessment Criteria in the Rubric attached to the MyUni Assignment and detailed below.

Grades will be allocated in-line with the University’sgrade descriptors.

Your grade is not matter of where you ‘lost marks’, but rather the evaluation of what you have presented against the standards and the criteria.

The assessment rubric on MyUni also relates your assessment against the main criteria to achievement against Course Learning Outcomes. This is based on the assessment criteria; but is not separately relevant to the assessment grade.