The Impact of Price Stabilisation on Producers’ Revenue and Consumers’ Expenditure

Abstract

Despite its obvious relevance, price stabilisation with multiplicative errors has not received the attention it deserves. In this paper, the model developed in section 2 is used to assess the impact of complete price stabilisation on producer’s revenue and consumer’s expenditure. Using a theorem¹ due to Turnovsky, some rather strong analytical results are presented in sections 4 and 5. In particular, it is shown that demand and supply elasticities acquire a strategic importance. The conclusions, together with the assumptions implicit in the treatment are presented in section 6.