” Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. “
The reason most economists are usually oppose about price controls is that they distort the allocation of resources. Price ceilings, which prevent prices from exceeding a certain maximum, cause shortages. Price floors, which prohibit prices below a certain minimum, cause surpluses, at least for a time.
For example, if the supply and demand for milk and eggs are balanced at the current price, and that the government then fixes a lower maximum price. The supply of milk and eggs will decrease, but the demand for it will increase. The result will be excess demand and empty shelves. Although some consumers will be lucky enough to purchase milk and eggs at the lower price, others will be forced to do without.
In a more simplistic economy, price controls might work. In today’s complex market place of globalization, you will find that many products are inter-connected. These relationships are really in a fragile balance and many factors can set a chain reaction that will take out many aspects of growth along the way. Most interesting are the price subsidies that protect national industries from the foreign threat of competition. Although practiced in every nation, those that try to protect their industries the most are those that seem to subsidize failure. The subsidies become increasingly expensive and money is a limited resource. The greatest threat of a price support is when the price support is retracted. Complete industries have failed in different countries around the world due to this process. It seems that when you try to prevent failure in price and you continue it for very long, you end up guaranteeing failure.
Mankiw, G. (2012). Principles of Economics (6th Edition)
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