Microeconomics, price and quantity
control
Price controls are legal constraints imposed on the maximum and
minimum level that the market price can reach.
What are the maximum and minimum price level?
The maximum price level is the maximum price that sellers can
practice in the sale of a good or service, while the minimum price
level is the minimum price that consumers have to pay for a good or
service.
The maximum price is inefficient because:
-Inefficiently low quantity
-Inefficient allocation to consumers, because those who need a
good or service and are willing to pay for it more do not get it while
those who do not need it and offer less money to get it manage to it
-Waste of resources
-Illegal activities, black market
Why are maximum prices if they are inefficient?
Example: New York rental control
-Maximum prices hurt part of the residents but give some cheaper
housing than they would have obtained in an unregulated market
-When maximum prices have been in place for a long time, buyers
may not have a realistic idea of what would happen without them
