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Exampls of Price Mechanism in China

In current years in China, a nationwide famous tea called Xihu Longjing Tea is allocated to buyers using the price mechanism. This kind of tea is produced only in one place, Xihu, or West Lake, in Zhejiang Province in China, and is very dependent on weather. If in one year there is frost in spring in which Longjing Tea is harvest and produced, the quantity of production will plummet seriously.

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This shifts the supply curve to the left in a large scale, which makes the price high-rocket to the new equilibrium point by moving along the demand curve. Then in this year Longjing Tea will become a kind of luxurious drink.

Only rich people are able and have the willingness to purchase, who regard this as a way to show off their wealth. I think the society should use the price mechanism to determine for whom this good is produced because as rareness, luxury, as well as consumption for enjoyment, the change of the price will not make big effect on the living situation of the middle class and disadvantaged consumers. Price mechanism in the market of Longjing Tea has no impact on social equity but improve efficiency of allocation. Also in China, vegetables and meat are products that are not allocated by the price mechanism.

Instead the price is stipulated by the government. Although vegetable production and transportation, like Longjing Tea mentioned above, are affected by seasonal climate, the Chinese government makes its effort to stabilize the price. I believe that the society should not use price mechanism to allocate vegetables and meat because they are daily necessities, which are produced for all people, the riches, the middle classes, as well as the poors. I think government should spend some of their revenue to stabilize the increasing price in order to gain equity and the stability of the society.