New Tutorial Added: Price Controls – Minimum and Maximum Price

Maximum Price

It is known as maximum price or price ceiling when the government sets a maximum legal limit of a price of a particular good or service. For this to have an effect on market, the price ceiling must be placed below the natural market price. This normally leads to a shortage – the quantity demanded will be greater than the quantity supplied.

max_price

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Move from a 'pegged system' to a 'managed float'

On 10th April 2011, MMA and the government announced the change of the country’s exchange rate system from a fixed (pegged to US$) exchange system to a managed float.
Under the new system, Maldivian Rufiyya is allowed to fluctuate against US Dollar within a range of MRF10.28 to MRF15.42.
If a currency is allowed to float, the exchange rate will fluctuate according to the demand and supply of the currency with respect to the compared currencies.
What will be effects of this move?

The possible effects are:

  • The immediate effect will be that the Maldivian Rufiyya will depreciate against US Dollar. This is already happening and was expected since US Dollar was being traded at a much higher rate in the black market compared to the official rates.
  • The expensive US Dollar will increase the market prices of most(if not all) of the imported goods and services. The shop keepers are funny in this case since they have even increased the prices of the items that they acquired when the Dollar was still at MRF12.85. What they don’t realize is that any harm to the economy will in turn harm them too.
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