Tutorial: Economic Lyceum Topic: State Economic Policy Prepared by : Ing. Lenka Gabrielová Projekt Anglicky v odborných předmětech, CZ.1.07/1.3.09/ je spolufinancován Evropským sociálním fondem a státním rozpočtem České republiky.

INCOME AND PRICE POLICY

The income policy, known as wage and price policy, is a part of a macroeconomic policy. If there is a risk that inflation gets out control, the governments are looking for the way to stabilize prices.

This type of policy takes many forms –from voluntary wage and price guidelines to the direct legal regulation of wages, salaries and prices. Income policy affects the prices of production factors, products and services. This policy is used when fiscal and monetary measures are insufficient (usually in the price regulation of some commodities).

It is an area of economic policy by means of which the state affects the price of production factors (especially wages, profit). It focuses on stabilizing of the price level; moreover, it tries to reduce inflation without negative impacts on GDP and unemployment. It solves residents incomes and their possible regulation by the state. Income policy is used if inflation gets out of control. The state is looking for a method to stabilize prices.

The state may assert its intentions through a strict control of prices and wages – regulatory measures It uses various forms: Freezing wages by the statutory measures of the government Limits of the wage growth Voluntary restrictions of the wage growth as a result of negotiations of employers and employees under the influence of government recommendations a) voluntary regulations -it sets a percentage (%) of nominal wage growth that is determined by the agreement between government, trade unions, employers (tripartite) b) government control of the wage and price development c) tax regulation of wages and prices

A set of the state or company measures concerning prices. The price policy consists of price selection system, setting and influencing of the price level, price relations, planning of price dynamics, utilization rates to promote economic goals (balancing supply and demand, influencing of the real incomes). The price policy signifies a long-term plan of the price development.

Each company has to determine which price policy will be applied in the market. The price policy is based on its own business philosophy and specific conditions (company size, type and range of products, customers, competitors, etc.)

1) the overall price level– i.e. whether the company will implement high or low prices. 2) whether the prices will be the same or different– for example in the city centre or suburb. 3) price level of the introductory products– for example low prices to create demand or high prices – skimming strategy – this strategy is used for new products whose position in the market is unique. 4) changes in the prices– for example depending on the life cycle of a product (market introduction, growth, maturity, decline), season (before, during and after the season). 5) method of pricing–by means of pricing a company can monitor the achievement of different goals.

Indicate the difference between nominal and real wages. Do you know the actual minimum wage in the Czech Republic? Have you ever experienced different price policies in a company? For example in different seasons of the year, with different price level or price discrimination? Give a specific example.

KREBS, V. a kol.: Sociální politika, Praha: ASPI, a. s., 2005, ISBN SLANÝ A., a kol.: Makroekonomická analýza a hospodářská politika Praha: C. H. Beck, ISBN VOSTROVSKÁ, Zdena, VORLÍČEK, Jan: Úvod do hospodářské a sociální politiky, Praha, VŠE, 2005