PRICE ADJUSTMENT

Price Adjustment

Price Adjustment

An effort to bring inflation under control will not be credible if the government does not undertake to reduce its budget deficit and stop financing it with central bank borrowing. Finally, the battle against inflation will be easier if institutions and policies are in place to facilitate price adjustment: labor market flexibility, competitive markets, abolition of price and wage controls.

The price adjustment that accompanies free trade, via the removal of tariff or quota protection, for example, is not without real costs. Since tariffs are unambiguously good for protected firms and the labor working for those firms, the loss ...