Solution of Rising Prices

Solution to Price Instability in Nigeria

Solution of Rising Prices in Nigeria is discussed in this article. This is one of the problems in Nigeria and we hope to achieve solutions to it.

Solution to Price instability 

Solution of Rising Prices
Solution of Rising Prices – Photo Source:

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Nigeria as a developing country is faced with the problem of price instability. This economic problem is classified by economists as a micro-economic problem.

The solution to price instability in Nigeria has been one of the policy objectives of monetary policy which is to stabilize the price level, otherwise referred to as “solution to price instability”.

The definition of price stability does not mean that prices will remain unchanged definitely. It means that comparative prices will change as fluctuating tastes alter the composition of demand, as new products are developed and as cost-reducing technologies are introduced.

Both economists and laymen favor this policy because fluctuations in prices bring uncertainty and instability to the economy. Rising and falling prices are both bad because they bring unnecessary loss to some and undue advantage to others.

Again, there are associated with business cycles. So a policy of price stability keeps the value of money stable, eliminates cyclical fluctuations, brings economic stability, helps in reducing inequalities of income and wealth, secures social justice, and promotes economic welfare.

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However, there are certain difficulties in pursuing a policy of stable price level, and the solution to price instability can be applied.

The first problem relates to the type of price level to be stabilized. Should the relative or general price level be stabilized, the wholesale or retail, of consumer goods or producer goods? There are no specific criteria with regards to the choice of a price level.

Solution to Rising Prices

Economists suggest that the compromise solution to price instability would be to try to stabilize a price level that would include consumers’ goods prices as well as wages.

The will cause or necessitate an increase in the quantity of money but not by as much as is implied in the stabilization of consumer goods prices.

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Secondly, innovations may reduce the cost of production but a policy of stable prices may bring larger profits to producers at the cost of consumers and other intermediate products at high prices, and the cost of production of domestic goods will rise.

Conversely, a policy of stable prices will reduce profits and retard further investment but also conflicts with economic progress.

Despite these drawbacks, the majority of economists favor a policy of stable prices. As pointed out by an economist, Dasgupta that the solution to price instability is simply the stability of some appropriate price index in the sense that we can detect no definite upward trend in the index after making proper allowance for the upward bias inherent in all price indexes.

Furthermore, the issue of price instability can be resolved when the rise in prices is matched with the growth of the economy and this will be moderate when new resources are developed and growth leads to the production of more commodities, the price Instability will be checked.

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However, the price instability can be solved through its relationship with Employment and the policy implication of such a relationship are that there can be no conflict between Employment and the solution of price instability so long as resources are not in excess supply and if the government controls the excess demand through appropriate monetary policy, there will be the stability of the Price level in the Nigerian economy.

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