Essay 1- Sample 1- Score 6 or 5 (Very Strong)

Essay 1- Sample 1- Score 6 or 5 (Very Strong)

Governments adopt price controls on basic goods to allow the poor urban consumers afford those goods. This policy is more common in the developing countries where there are large numbers of workers whose incomes are low. Given free market prices for basic goods, many of the urban poor may not be able to afford basic goods like bread, cooking oil, sugar, etc. The government therefore adopts a price control to keep prices low enough so the low income consumers can afford those goods. The effect of price control is a shortage. The government may also provide a subsidy to the producer in order to increase the quantity of this good available to consumers at low price.

As the article mentions, in the case of Venezuelan gasoline, one effect of the subsidy is that it may create a large difference between the domestic price and the price of this commodity in another region or country. There is an incentive to buy the gasoline at the artificially cheap price at home and smuggle it out of the country and sell it there at a higher price.

The article also points out that government spends large sums on this type of subsidy. This contributes to government budget deficits. In addition, due to low revenues from sale of low priced goods the producers may opt not to invest in their businesses. In the case of cheap gasoline in Venezuela, the refineries are unable to invest adequately in repair and expansion of their operations.

I would argue that price control and subsidy policies on basic goods are harmful to economic growth and efficient allocation of resources. The artificially low price leads to over consumption and waste. Additionally in the case of Venezuelan gasoline, the large difference between the price in Venezuela and Colombia has led to the rise of petty traders who illegally smuggle gasoline out of that country and into Colombia. These people could have used their time and effort actually producing other goods and services, increasing the national output.

I would also argue that the burden of large subsidies on government budgets harms economic growth. Governments of developing countries could best use their tax revenues on investment type projects such building of roads, schools, hospitals and promoting education instead of augmenting consumption of food or gas by the public.

Essay 1- Example 2- Score 6 or 5 (Very Strong)

In many developing countries, the government sets (controls) the prices of necessary goods to make these goods affordable to the poorer members of society. However price controls trigger shortages as producers are not willing to sell these goods at such low prices as this would result in losses. To induce producers to make