According to
an article published by The Star newspaper on 6th October 2012, parents want
baby milk to be made a price controlled item.
Young
talents are the key to a bright future as they will be the driving force for our
country. A head start is vital for cultivation of young talents as it is a long
term investment, results will be only be evident in the days to come. Hence it
is not strange to see parents putting in attention in the development of their
child while they are still in the baby stage. Although many look to education
as the most important part of the developing of young talents, we must not
forget to provide young babies with the nutrients they need is equally
important. One of the important and constant consumption of a baby's diet is
baby milk. Baby milk provides all the basic and essential nutrients a baby
needs for growth thus is vital to the positive growth of a baby.
Recent news
suggests that parents are being increasingly burdened by the increase in price
of baby milk. Some even resorted to only purchasing the cheapest and lowest
quality baby milk available. They urged the government to intervene as many
parents are unable to cope to the rising cost of baby formula. As baby milk
prices remain volatile, suggestions have been made that the government take
action and provide strong price controls for the product.
A price
ceiling can be applied to make it illegal to charge a price above the specified
amount. The price ceiling should be below the equilibrium price so that to
ensure it can bring out the effects needed. This will make sure that all legal
transactions taking place will be at a price at or below the price ceiling. By
implementing a price ceiling for baby milk, parents can then purchase baby milk
at a lower price and will likely lead to increased demand. Meanwhile, supply
can be expected to drop as suppliers will be unwilling to supply a high
quantity at a lower price. Hence, shortage will occur and it will be represented
by a gap between quantity demanded and quantity supplied. However it will benefit parents who are
unable to purchase baby milk initially.
A price
ceiling can also cause increased time spent on search activity as a shortage of
supply will cause consumers to spend more time searching for someone to do business
with. Search activity is costly as consumers will incur extra opportunity cost.
An illegal black market will also operate alongside the legal market for baby
milk with a price ceiling. A black market will arrange for transactions at prices
much above the price ceiling as there will be willing demand at the price due
to a shortage created by the price ceiling.
While a
price ceiling is able to provide cheap goods for consumers, it is riddled with
inefficiencies. A price ceiling below the equilibrium price for baby milk will
cause underproduction and reallocation of resources by the producers with no
benefit for consumers. This creates a deadweight loss as producer and consumer
surplus shrinks. Also notable is the potential loss from increased search time.
This makes a price ceiling rather infeasible to control the price of baby milk.
Parents are
also concerned that lower income parents will be unable to afford quality baby
milk and will have to settle for the cheapest and lowest quality milk in the market.
Hence, poor quality baby milk can be seen as a inferior good. As baby milk is a
staple consumer product, parents need to purchase it as it is a necessity for
their child's growth. This will lead to a compromise in the quality of baby
milk and would jeopardise the growth of the baby.
Another
option is that the government introduce subsidies for baby milk products. By
introducing subsidies, the government can drive down the price for baby milk in
the market. This happens as the introduction of subsidies move the supply curve
to the right. This increases the quantity supplied and decreases the price for
baby milk. However, this method also has its repurcussions as the government
may incur more costs as it provides subsidies for the product.
Baby milk is
an important product in the market and wields great influence on the growth of
the future generation. Hence, the government should do everything within their
ability to ensure that parents can afford quality baby milk products for their
babies. The most efficient way for the government to do so would be to
introduce subsidies to the market for baby milk. This effort will be the most favorable
and increase the well-being of babies nationwide, at the expense of the need to
allocate resources to fund the subsidy. Compared to a price ceiling which has
many inefficiencies, subsidies has much more benefits. Implementing subsidies
will be the way to go so that every baby can enjoy proper growth in this very
important stage of their lives.
Author : NG JUN YE