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What are the positives and negatives of price control? Use, for example, a price...

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wyrick4 | eNotes Newbie

Posted October 10, 2013 at 2:44 PM via web

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What are the positives and negatives of price control? Use, for example, a price control set on gas.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted October 10, 2013 at 2:59 PM (Answer #1)

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In general, economists do not believe that there are any positive aspects of price controls.  They do feel that there are negative impacts, the most important of which is that price controls create shortages of the item whose price is being controlled.

If a government imposes a price control on gas (as Hawaii did in 2005), at least some consumers will likely be happy.  For as long as supplies last, consumers will be able to get gas at a lower, more “reasonable” price.  This is the only real positive of price controls.

But this is outweighed by the negatives.  When the price of gas goes down, people will want to buy more of it.  They will be happy about the lower prices and will demand a greater quantity of gas.  The problem is that suppliers will not want to sell as much gas at that price.  They do not make enough money at the lower price to make it worth their while to produce and sell as much gas as they previously did.  What results is a shortage.  Consumers buy more gas and producers make less gas available for sale.  This causes shortages and things like people having to line up in hopes of buying gas.

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