Understand the Economics; Don’t Compare Price Increase to Corruption or Evil during Coronavirus Pandemic, The Case of Ghana

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Market interactions and the corrupt practice of some greedy public officials are not the same. You cannot be justifying the demand and supply to equate corruption. The market is natural, there is always an interaction to reach equilibrium which allows for the creation of a win-win situation.

Coronavirus cases in Ghana have increased the demand for hand sanitizers. The resulting shift in demand has been met with an increase in price for hand sanitizers. Interestingly, people are quick to juxtapose the price increase as a result of market interaction to some corrupt practice of some public officials. Market interactions are not the same as wasting public funds and bloating budget figures. This is because corruption and corrupt practices do not obey market rules.

The market is natural. Once a shortage is anticipated or there is a shift in demand, the price may increase. Don’t put away the economics in this situation. The solution lies in getting substitute goods for hand sanitizers or increasing the supply for it. When that is done, the price will naturally reduce afterward.

However, this same market solution does not apply to the corrupt practice of some public officials in our society. For instance, when fuel prices reduce globally, no change in price occurs. But when fuel price increases globally, fuel price increases in Ghana. Certainly, the fuel market policy here is not following the normal market interaction.

It would be erroneous to think that what the sellers of hand sanitizers are doing in response to speculative shortages or shift in demand is the same as what our leaders do in their corrupt practices. Corruption doesn’t obey any market rule. People are finding it difficult to relate classroom lessons on Economics to circumstances in the real world.

The price increase is the best way to create incentives for producers to continue the production of goods (hand sanitizer). Coronavirus pandemic has its economic implications. Countries have adopted measures to prevent the spread of the virus and some of these measures affect the economic interaction of the society. Airplanes have been grounded, people are advised to stay indoors. An increase in price is an incentive that would make the producer risk himself to continue production in the face of the coronavirus pandemic.

Besides, strict measures adopted by countries to prevent the spread of coronavirus tend to affect the cost of production. This is simply because the usual route of a transaction has been disrupted. Safe coronavirus free transport networks add up to the cost of transportation. Importing raw material for production may increase due to some of these strict measures countries affected by the covid-19 virus have adopted.

Also, we must not be oblivious of the fact that the market allows free entry and exit. The challenge of price increase could be advantageous. New firms can enter into the business, produce goods (hand sanitizer) and take advantage of the situation by reducing their prices. An example is the new hand sanitizers that have been produced by the Faculty of Pharmacy and Pharmaceutical Sciences, KNUST – Kumasi as a reduced price of Ghs15 (500ml) and Ghs25 (1L).

This would make some customers of existing firms shift to purchase from these new firms and may remain with them even when the pandemic is over. Such a situation becomes disadvantageous to existing firms that have increased prices. Therefore, a whole lot is considered and whatever market decision arrived at is accompanied by advantages and disadvantages since Free entry and exit brings competition.

In conclusion, the increase in price is a better solution to respond to the shift in demand. Everyone will be glad to have more goods (hand sanitizer) in stock to purchase than not to have any at all. Interfering in the natural market in a form of price control would worsen the situation. The government can help by reducing import taxes on raw materials and advance steps that will increase local production of goods hence increase the supply of goods (hand sanitizer, tissue papers, etc.). Response and decision to market interaction are not the same as greed or corruption. It’s simple economics and the interaction of the invisible hands of demand and supply.

 

Article by

Nathaniel Dwamena

He is a free-market enthusiast, Programs Manager at Young Africans for Opportunities (YAFO) and the Research and Development Manager at the Institute for Liberty and Policy Innovation (ILAPI).

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