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Reuters: Orban extends price curbs as inflation soars ahead of election

Article published: 12 Jan,  2022

IB Economics syllabus: Microeconomics (government intervention, price controls, maximum price)

Inflation

Inflation in Hungary soared lately (just like in many many other countries all around the world) to above 7%. At the same time, April 2022 elections are approaching so the government tries to curb this high rate of inflation. At first, back in November last year (2021), they introduced a price cap on petrol (this is also a great article btw). However, inflation remained elevated (above 7%).

Maximum prices on essential food items

Lately, as the article by Reuters above reports, the government has tried to lower living costs to those on low income by putting a price cap (maximum price) on 6 essential food items (flour, sugar, sunflower oil, milk, pork leg and chicken breast). The government has decided to make stores sell these items at the price used in mid-October 2021. This way, these will be more affordable to everyone, but can potentially lead to shortages – as you know from one of the most basic microeconomics concepts already.

It isn’t hard to find related articles about how stores are trying to limit purchases (in order to avoid a shortage) since the introduction of the price cap on 1st Feb 2022. A good key concept here would be equity, economic well-being or efficiency.

Source of image: John Thys/Pool via REUTERS

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