“Venezuelan shoppers face food shortages”

The Venezuelan government’s control of coffee prices has created a price ceiling below the equilibrium price (P*). Because of this, at the maximum price, supply still exceeds demand, causing a shortage.

The people that are affected by this are; the consumers, coffee producers, producers that make serve coffee products, black market dealers, and the government. In the short-run, the shortage of coffee will continue to be high, so long as the government keeps the price restriction as producers continue to withhold coffee from the market. They are withholding supply until a time when they can make profits by selling them. In this case, the producers (as well as those that sell coffee products) are losing because their profits and production has been halted. Subsequently, because stores, restaurants, cafés, etc., are not recieving coffee from the producers, consumers are not able to purchase coffee once the stores’ existing stock runs out. The government lose as well, even though they are able to enforce the price ceiling. Their purpose for the price ceiling was to help handle inflation. However, no indication was made whether this goal was achieved, and it was made clear that the coffee market was in great crisis. In the long-run, a black market will be created because of the tight price controls. Black market dealers will be able to offer to buy coffee at prices higher than that of the price ceiling, and then sell to the public. In this case, the producers, the consumers, and the black market dealers all win, due to the renewed consumption and production of coffee. However, this would be illegal activity, and the producers and the dealers will be prosecuted if they are caught.

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