Q. 104.7( 3 Votes )

Read the sixth paragraph under the heading of Role of Government in Regulating Prices and answer the question: How does APM affect the government revenue? Discuss.

Answer :

Administrative Price Mechanism (APM) is the price fixed by the government for essential commodities to prevent hoarding and to facilitate their availability within a reasonable price range. It largely includes commodities like LPG, kerosene, diesel, CNG, and others. Controlling the prices by the government and subsidising its availability to the public affects the total revenue of the government. In this price control mechanism, the government fixes the price, and the commodities are partly or fully subsidised and sold by the government. This reduces the total revenue of the government. If the price is being controlled and the commodities are distributed via the private sector, the government would have to pay the private sector the excess of the subsidised amount. This results in a reduction in the revenue of the government. This can mostly be observed in the case of modern welfare governments.


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