Discuss two distinct effects of the 1978 price control measures on essential commodities on the informal sector's supply chain in India.
Answer
Price ceilings caused shortages leading to black‑market sales, and reduced profit margins discouraged informal traders, thereby shrinking supply chain efficiency.
Step-by-step solution
- Explain that price controls set a ceiling below market equilibrium price.
- Resulting shortage forces consumers to turn to informal or black‑market sources.
- Lower official prices reduce profit margins for informal traders, causing some to exit or reduce quantities supplied.
- These two effects—shortage‑induced black‑market activity and reduced trader incentives—characterise the impact on the informal sector.
Common mistake: Mentioning only one effect or ignoring the role of profit margins.
Concept tested: Impact of price controls on informal sector
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