Economic Analysis of the Effects of Wheat Price Distortions in Pakistan: 1975-90

Nuzhat Iqbal


Price distortions induce the inefficient utilisation of
resources by giving incorrect signals to producers and consumers. Since
distorted prices do not reflect the real value of resources, quantities
of goods and services produced may not be consistent with their demand.
These may be caused by a number of different reasons. They may, for
instance, be caused by monopolistic tendencies, preferential treatment
of a particular sector of the economy, establishment or diffusion of a
particular product or an input, etc. In fact, price distortions occur
sometimes from deliberate and sometime inadvertent government policies
of subsidies and price supports in pursuance of certain social or
economic objectives. In fact, where there is no government intervention,
prices equilibrate consumer demand with the productive capacities of
producers. If prices are distorted by any agency their allocative role
is seriously diminished. Resource use efficiencies increase if the
government restricts its role to ensuring proper functioning of the
market and lets prices be determined by the forces of demand and supply.
Nevertheless, it is now being increasingly recognised that agricultural
price distortions are inherently adverse to the national economy because
they stimulate a non-optional transfer of resources out of agriculture
when set too low, and putting an excessive burden on consumers when set
above world prices. This study shall discuss the price intervention
mechanism adopted in Pakistan, then; analyse the effects of distortions
of prices and the role of distorted prices in achieving the above
mentioned objectives.

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