Price Controls

• Minimum prices are legally enforceable limits set above the market equilibrium to artificially hold prices higher.
• Minimum prices cause a contraction in demand and an extension in supply, resulting in excess supply over demand.
• They can be used to discourage consumption of demerit goods or ensure fair prices are paid.
• Maximum prices are legally enforceable limits set below the market equilibrium to artificially hold prices lower.
• Maximum prices cause an extension in demand and a contraction in supply, resulting in excess demand over supply.
• They are used to ensure access to necessities for consumers on lower incomes, such as rent controls.
• Price controls can lead to market disequilibrium, black markets, unemployment, and shortages.

Price controls, such as minimum and maximum prices, can have significant impacts on markets. Minimum prices are legally enforceable limits set above the market equilibrium price, causing a contraction in demand and an extension in supply. They can be used to discourage consumption of demerit goods or ensure fair prices, but can lead to excess supply and black markets. Maximum prices, on the other hand, are legally enforceable limits set below the market equilibrium price, causing an extension in demand and a contraction in supply. They are often used to ensure access to necessities for consumers on lower incomes, but can result in excess demand and shortages. Price controls can also lead to unemployment and their effectiveness depends on the price elasticity of demand and supply.