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CASE STUDY 1: Exorbitant prices by some hardware stores...Cost of cement triples [adapted from Kimoy Leon Sing 28th /05/2021; Trinidad Express Newspapers]

A BAG of cement produced by Trinidad Cement Ltd. (TCL), the sole manufacturer in the country, which usually costs approximately $50 retail has more than tripled in price at some places since Covid-19 invaded the country in March 2020. Some people are paying as much as $150 and more for a bag of cement at retailers. TCL has no effective competition and they have recently ceased production due to Covid-19 restrictions.

People have turned to social media to share their bills and frustration over exorbitant prices carried by some hardware stores in North, Central and South Trinidad. As the world continues its fight against Covid-19, some countries have stepped up to prevent this very same thing.

In China, there are strict anti-price gouging rules regulated by its Price Law. This requires business operators to set prices based on fairness, the costs of manufacturing, and supply and demand. Violators can incur administrative penalties, including restitution, confiscation of any illegal gains, and a fine up to five times the illegal gains.

While the European Union does not have specific price gouging laws, under its competition law, companies can be sanctioned for using their market power to exploit consumers, including by price gouging.

The Consumer of Affairs Division (CAD) of Trinidad and Tobago (T&T) is the consumer protection and advocacy arm of the Ministry of Trade and Industry (MTI). They are responsible to safeguard the economic interests of consumers. Yet, they are unable to control prices set by retails. 'Trinidad and Tobago subscribes to a free-market economy where prices are determined by demand and supply, therefore businesses are allowed to price items as they see fit,' CAD said. 'If a consumer believes prices in one establishment are too high, we encourage consumers to be empowered enough to refuse purchase and try other establishments, compare prices among establishments, and make purchases where they feel most comfortable and confident that they are getting value for money.'

In a recent statement, the MTI urged retailers of cement not to take advantage of consumers during these challenging times. Consumers were urged to exercise discretion to avoid being victims of price gouging.

OUT OF STOCK: A sign that reads 'No Cement' is displayed at a hardware store in East Trinidad. The price of cement has tripled since Covid-19 came to our shores in 2020. -Photo: JERMAINE CRUICKSHANK

 a. i. Explain, Using examples from the case, THREE characteristics of free market economic system?

ii. Discuss, with the aid of a diagram, why a shortage of cement will cause the market price for cement to rise.

iii. Evaluate, with the aid of a diagram, the impact of COVID-19 on equilibrium price and quantity of cement in the T&T market.

b. Assess and illustrate Trinidad Cement Limited (TCL) market structure and long run equilibrium.

c. Discuss TWO possible barriers to entry that TCL may possess.

d. If TCL has two factors of production – labour (variable) and capital (fixed) – illustrate and assess the impact of COVID-19 on their Total Physical Product, Average Physical Product and Marginal Physical Product.

e. If the retailers of cement operate under a non-collusive oligopoly market structure, illustrate and discuss why the price of cement could remain stable at the high rate.