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Friday, April 10, 2009

The result of price (and quantity) controls?

Economists are quick to point out that putting a binding ceiling on the price of a product will generally lead to shortages. This, in turn, tends to lead to corruption and inefficiency in the distribution of the product: individuals "win" a lottery in being able to purchase a product at the low price and can resell in the secondary market at a higher price and some individuals use their social status or their resources to secure delivery of the product. in the market process. Regardless of the negative outcomes of price and quantity controls, regular citizens are constantly complaining about "high prices" and, unfortunately, turn to the heavy hand of government for a solution. The solution is often a policy that generates a shortage which generates even more complaints for the government to "do something."

What happens if the entire system of goods and services is under price and quantity controls? If you think getting plywood in the run-up to a hurricane is difficult, think about a system in which getting plywood on a Wednesday afternoon is equally difficult and time consuming. English Russian has a photo essay that depicts the results vividly. Notice the long queues and limited selection in the stores. Exactly the combination that economists preach in class and at which undergraduates often express disbelief.

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