Question #a0084

1 Answer
Oct 9, 2015

Price controls lead to shortages or surpluses of the good or service.

Explanation:

I found some helpful graphs, here .

enter image source here

When the government sets a price ceiling (a maximum allowable price) below the level that the market would reach at equilibrium, this leads to shortage. At the artificially low price, the quantity demanded by buyers is much greater than the quantity supplied by sellers.

When the government sets a price floor (a minimum allowable price) above the level that the market would reach at equilibrium, this leads to surplus -- too much of the good. At the artificially high price, the quantity demanded by buyers is much lower than the quantity supplied by sellers.

Perhaps the best-known examples are,
For price ceilings: rent control
For price floors: minimum wage