Price Regulation in Intrasectoral Output Composition

Abstract

In Chapter 4, we demonstrated that price adjustment was successfully used to regulate total cotton output, but not the coal output of state mines. In this chapter we examine the role of producer price adjustments in altering the composition of output within particular sectors, with special reference to the problem of the coexistence of shortages and surpluses of certain products. We empirically investigate this problem by using the steel and bicycle industries as case studies. We believe that irrational price ratios are one cause of the coexistence of shortages and surpluses, but the fundamental cause of this problem lies in the system of direct administrative control, and not merely in the prices system per se.