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Explain the main causes for the increase in the prices. Give two arguments in favour of regulating the rising prices.                                                                                                                                                          [Delhi 2005]

Answer:

Causes for rise in price in India are:

(i) When cost of production goes up because of the increase in the prices of raw materials, the increased cost is added to the existing price levels.

(ii) When people have more income in their hands, their demand for goods and services increase. If this increase is not met by increase in supply of goods and services, there is shortage. This increases the price of goods and services.

(iii) The government keeps on raising the process of number of commodities (e.g. petroleum) from time to time. All these revisions in the administered prices have contributed to the price-rise in recent years.

(iv) Hoarding by producers, wholesalers especially when production goes down in the country, aggravates scarcity conditions and pushes up the price level.

(v) Imposition of Indirect taxes like excise and custom duties, and sales tax gives an opportunity to trading class to raise the prices.

(vi) Increase in population creates pressure on the demand for goods and services which in turn becomes the cause for price rise.

Two arguments in favour of regulating the rising prices are:

(i) Sometimes traders whose main aim is to earn profit raise the prices by illegal ways.

(ii) If there is no increase in wage for workers who are also consumers in the market they cannot buy the goods. This creates problem for the people.