Neutrality of the Regulated Price Shock on Price Indices When All Primary Factors’ Endowments Are Adjusted

The regulated price policy may be implemented for some products. It is generally implemented for some products such as electricity, natural gas, water and so on that are supplied as monopolist. The regulated price shock on these products may lead to an adjustment in the endowments of primary factors. The aim of this paper is to investigate the effects of a regulated price shock on price indices when all primary production factors adjust their endowment with respect to a price shock. To this end, in addition to a mathematical approach, the matter is demonstrated practically for Iran’s economy through an extended Standard Leontief Price (SLP) model. The Input-Output table of Iran for the year ۲۰۰۱ is employed as the database of the research. The result of the research indicates that in a similar case, the regulated price shock is neutral and has no benefit for the monopolists who brought it up.  

Keywords:

Regulated price shock , Standard Leontief Price (SLP) Model , Neutral policy , Iran