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Assuming you mean an actual price control, such as a ceiling or floor, there are two very easily-identifiable effects.
When thinking about price controls, think of the supply and demand curves and remember that with a price control, it is impossible for a price to get into equilibrium. With that in mind, we can identify two problems that result from this.
1. A shortage/oversupply of the good. If there is a price ceiling, you have a shortage (a la gasoline during the price controls of the 70's.) If there is a floor, you have overproduction (a la ethanol. Which, granted, is subsidized, but that is effectively like a price floor).
2. An inefficient allocation of resources. With ethanol being subsidized, we witnessed a massive increase in the price of corn. The market did not want this, and thus we saw an inefficient allocation of resources.
Wiki User
∙ 15y ago
Wiki User
∙ 13y agoThe major advantage of price control is stability which "should" create confidence amongst the consumers and producers (you know what deal you're getting.) In addition, a low controlled price would stimulate growth (as seen in energy subsidy in LDCs) Also, price controls are often used as a measure to control inflation.
However, in recent history, almost all attempts at price control has failed since it undermined the market force.
What happens when prices are controlled are:
- Black market: especially when there are disruption in supply and demand, black markets will be created (since all demands are not satisfied)
- Holding out of stock: Happens when the producers believe the controlled price is below the market price i.e. they make less profit. Therefore, they opt to hold onto their stock knowing that at some point, the government will have to lift that control on price (Vietnam petrol industry in early 2011; Brazil economy during hyperinflation)
- Creates unemployment: because business makes less profit (due to lower price), they won't be able to hire as many people and would need to fire them => more unemployment which can lead to less economic growth.
Wiki User
∙ 12y agoBcoz
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What is the effect of the interaction of buyers and sellers on a market?
agreement on the price and quantity traded
Which of the following best describes the concept of equilibrium price?
A. Sellers are happy with the price, but buyers are unhappy with the quantity. B. Sellers are unhappy with the price, but buyers are happy with the quantity. C. Both sellers and buyers are unhappy with the price and quantity. D. Both sellers and buyers are happy with the price and quantity.
How are prices determined in a market economy?
it is being determined that, in a market economy, if buyers and sellers meet it will do effect in prices. for example: if the number of buyers increases the price also increases. so sellers will produce more goods and services. in the same manner, if the number of buyers will declined the price will go down so sellers now will produce in constant.
Buyers and sellers who have no influence on market price are referred to as what?
They are referred to as price takers.
What are the requirements for perfect competition?
Perfect knowledge of market - buyers' and sellers' sides Many buyers and sellers Sellers are passive price takers Free entry and exit for the industry Homogenous product
What is the effect of the interaction of buyers and sellers on the market?
agreement on the price and quantity traded
What is the effect of the interaction of buyers and sellers on a market?
agreement on the price and quantity traded
Which of the following best describes the concept of equilibrium price?
A. Sellers are happy with the price, but buyers are unhappy with the quantity. B. Sellers are unhappy with the price, but buyers are happy with the quantity. C. Both sellers and buyers are unhappy with the price and quantity. D. Both sellers and buyers are happy with the price and quantity.
How are prices determined in a market economy?
it is being determined that, in a market economy, if buyers and sellers meet it will do effect in prices. for example: if the number of buyers increases the price also increases. so sellers will produce more goods and services. in the same manner, if the number of buyers will declined the price will go down so sellers now will produce in constant.
What signal guides the decisions of buyers and sellers?
Price
Buyers and sellers who have no influence on market price are referred to as what?
They are referred to as price takers.
What are the requirements for competition?
Perfect knowledge of market - buyers' and sellers' sides Many buyers and sellers Sellers are passive price takers Free entry and exit for the industry Homogenous product
What are the requirements for perfect competition?
Perfect knowledge of market - buyers' and sellers' sides Many buyers and sellers Sellers are passive price takers Free entry and exit for the industry Homogenous product
The equilibrium price or market clearing price is the price where the intentions of buyers and sellers match. True or False?
True
When is the market in short run equilibrium?
When the sellers and buyers agree on a price, and the price is stable, in the short run.
How is the equilibrium price determined?
It is the price where the intentions of buyers and sellers match. where the supply and demand curves intersect
The ability to sell an asset quickly at a fair price is associated with?
An orderly market with sufficient liquidity where numerous buyers and sellers can agree on a fair price. You will notice the words "liquidity" and that the plural is used for buyers and sellers. There has to be money available to close a sale and some competition between buyers and sellers to make the transaction somewhat "fair".
