Exorbitant prices

Answer all Questions
CASE STUDY 1 (35 MARKS): Exorbitant prices by some hardware stores…Cost of cement
triples [adapted from Kimoy Leon Sing 28th /05/2021; Trinidad Express Newspapers]
A BAG of cement produced by Trinidad Cement Ltd. (TCL), the sole manufacturer in the country,
which usually costs approximately $50 retail has more than tripled in price at some places since
Covid-19 invaded the country in March 2020. Some people are paying as much as $150 and more
for a bag of cement at retailers. TCL has no effective competition and they have recently ceased
production due to Covid-19 restrictions.
People have turned to social media to share their bills and frustration over exorbitant prices carried
by some hardware stores in North, Central and South Trinidad. As the world continues its fight
against Covid-19, some countries have stepped up to prevent this very same thing.
In China, there are strict anti-price gouging rules regulated by its Price Law. This requires business
operators to set prices based on fairness, the costs of manufacturing, and supply and demand.
Violators can incur administrative penalties, including restitution, confiscation of any illegal gains,
and a fine up to five times the illegal gains.
While the European Union does not have specific price gouging laws, under its competition law,
companies can be sanctioned for using their market power to exploit consumers, including by
price gouging.
The Consumer of Affairs Division (CAD) of Trinidad and Tobago (T&T) is the consumer
protection and advocacy arm of the Ministry of Trade and Industry (MTI). They are responsible to
safeguard the economic interests of consumers. Yet, they are unable to control prices set by retails.
‘Trinidad and Tobago subscribes to a free-market economy where prices are determined by
demand and supply, therefore businesses are allowed to price items as they see fit,’ CAD said.
‘If a consumer believes prices in one establishment are too high, we encourage consumers to be
empowered enough to refuse purchase and try other establishments, compare prices among
establishments, and make purchases where they feel most comfortable and confident that they are
getting value for money.’Page 4 of 7
In a recent statement, the MTI urged retailers of cement not to take advantage of consumers during
these challenging times. Consumers were urged to exercise discretion to avoid being victims of
price gouging.
OUT OF STOCK: A sign that reads ‘No Cement’ is displayed at a hardware store in East Trinidad.
The price of cement has tripled since Covid-19 came to our shores in 2020. -Photo: JERMAINE
CRUICKSHANK
a. i. Explain, Using examples from the case, THREE (3) characteristics of free market economic
system? (3 marks)
ii. Discuss, with the aid of a diagram, why a shortage of cement will cause the market price for
cement to rise. (5 marks)
iii. Evaluate, with the aid of a diagram, the impact of COVID-19 on equilibrium price and quantity
of cement in the T&T market. (6 marks)
b. Assess and illustrate Trinidad Cement Limited (TCL) market structure and long run equilibrium.
(6 marks)
c. Discuss TWO (2) possible barriers to entry that TCL may possess. (4 marks)Page 5 of 7
d. If TCL has two factors of production – labour (variable) and capital (fixed) – illustrate and assess
the impact of COVID-19 on their Total Physical Product, Average Physical Product and Marginal
Physical Product. (5 marks)
e. If the retailers of cement operate under a non-collusive oligopoly market structure, illustrate and
discuss why the price of cement could remain stable at the high rate.