Economic Discussion
Cuba has put price control on indigenous food supplies because the influx of tourists in the country has put a strain on the product (Worstall, 2016). The price control is because Cuba’s production relative to the purchase is limited hence there is little foreign currency to buy indigenous food in the country.
Agricultural products in Cuba have a demand curve that slopes down to the right. On the other hand, the supply curve slopes upwards to the right. This trend in the demand and supply curve is an indication of product shortage and price rise. The rise in price is because the shortage has an effect of making people seeking to supply the product.
A price floor defines a market situation where the price charged is lower than the equilibrium price derived from market forces. On the other hand, a price ceiling defines a situation where the market prices are higher than the equilibrium prices derived from market forces. Price floor and price ceilings can be group or government-imposed (Sanderson, 2016). A price floor is often higher than the market prices and is imposed to make prices higher so that consumers may substitute the product. Price ceilings are often imposed to protect consumers from being exorbitantly charged.
The influx of tourists in Cuba has caused changes in demand and supply for food products. The government-imposed price control will increase the supply and quantity of food supplies and lower the high demand that is usually caused by incoming tourists.
Consumer surplus defines the difference between the actual pay a consumer pays for a product and the highest price they were willing to pay. Conversely, producer surplus defines the difference between the lowest price a producer would accept for a product and the actual price he pays. Agricultural products in Cuba results in a market shortage because the high number of tourists has created more demand that cannot be matched with supply.
References
Sanderson, F. H. (Ed.). (2016). Agricultural protectionism in the industrialized world. Routledge.
Worstall, T. (2016). Cuba is trying price controls to deal with food shortages. Forbes. https://www.forbes.com/sites/timworstall/2016/12/08/facepalm-cuba-is-trying-price-controls-to-deal-with-food-shortages/#32ee047b7fab