Chapter 3 - Price Controls 

• Nothing shows more vividly the importance of ==price fluctuations== in a market economy that the absence of such price fluctuations when the market is controlled.
• Price controls are imposed in order to keep prices from rising to the levels that they would reach in response to ==supply and demand==.
• Prices rise because the amount demanded exceeds the amount supplied at existing prices.
• Prices fall because the amount supplied exceeds the amount demanded at existing prices.

Price Ceilings And Shortages:

• When there is a ==shortage== of a product, there is not necessarily any less of it, either absolutely or relative to the number of ==consumers==.
• Some people use the ==price controlled goods or services== more generously than usual because of the ==artificially lower price==, and as a result, other people find that less than usual remains available for them.
• Scarcity versus Shortage: One of the crucial distinctions to keep in mind is the distinction between an increased scarcity, where fewer goods are available relative to the population, and a shortage as a price phenomenon.
• Hoarding: Individuals keeping a larger inventory of the price controlled goods than they would ordinarily under ==free market conditions,== because of the uncertainty of being able to find it in future.
• Black Markets: While price controls make it legal for buyers and sellers to make some ==transactions== on terms that they would both prefer to the shortages that price controls entail, bolder and less ==scrupulous buyers== and sellers make mutually advantageous transactions outside the law.
• Quality Deterioration: One of the reasons for the political success of price controls is that part of their costs are concealed.

Prices Floors and Surpluses:

• Just as a price set below the level that would prevail a shortage at the imposed price, so a price set above the free market level tends to cause more to be supplied than demanded, creating a ==surplus==.
• Price control in the form of a “floor” under prices, preventing these prices from falling further, produced surpluses as dramatic as the shortages produced by price control in the form of a “ceiling” preventing prices from rising higher.
• A surplus, like a shortage, is a price phenomenon. It does not mean that there is some excess relative to the people.
• What is crucial from the standpoint of understanding the role of prices in the economy is that persistent surpluses are as much a result of keeping prices artificially high as persistent shortages are of keeping prices artificially low.

The Politics of Price Controls:

• Price controls are always a tempting “quick fix” for ==inflation==, and certainly easier than getting the government to cut back on its own spending that is often behind the inflation.
• The greater the difference between free market prices and the prices decreed by ==price control laws==, the more severe the consequences of price control.
• When local prices spike, that affects supply as well, both before and after the natural disaster.
• Appeals to people to limit their purchases during an emergency, like other forms of ==non-price rationing,== are seldom as effective as raising prices.