March 27, 2015

The Economics of Price Controls

  • Christopher Coyne

    Associate Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
  • Rachel Coyne

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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Chapter Summary:

It is not hard to see why price controls are appealing. They offer what appears to be a quick and simple solution to rising prices and allow policy makers to provide short-term benefits to certain groups of people. It is true, by definition, that price controls will either raise (in the case of a price floor) or lower (in the case of a price ceiling) the price of the good or service inquestion. Further, it is true that not all people are made worse off by the implementation of price controls. Under a price floor,those who receive a higher price for their good or service thanthey would have in the absence of the control are made betteroff. Likewise, under a price ceiling, those who pay a lower pricefor a good or service than they otherwise would have are made better off. Economics, however, indicates that price controls are far from costless, and the associated costs are far reaching and potentially significant.

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