ABSTRACT
The key importance of a rational system of pricing for the success of the economic reforms under way in the USSR has been widely recognized by both Soviet and Western specialists. A retail price reform could result in higher prices in the state sector and thus narrow the price differential between it and the nonstate parallel economy. This would in turn influence the choices open to consumers and have certain implications for their welfare as a whole. The most important consequence of a price reform is its impact on the welfare of the Soviet consumer. Direct manipulation of prices by the Soviet government only takes place with respect to the first market. If the true indicator of the marginal full cost of purchasing a consumer good in the first market is its price in the parallel market, then what needs to be examined is how an increase in prices in the first market affects the parallel market.
