Why Do Governments Enact Price Controls?

… a core concept in Economic Analysis and Atlas102

Concept description

Alex Tabarrok (reference below, video on right) addresses the question: If price controls have negative consequences, why do governments enact them?

He notes that President Nixon’s wage and price controls in the 1970s were popular, as is demonstrated by Nixon being re-elected after they went into effect. He says:

“The public didn’t think that the price controls were to blame for things such as long lines at the fuel pump. Without knowledge of the economics behind price controls, the public blamed foreign oil cartels and oil companies for the shortages.”

Tabarrok notes that neither rent controls nor minimum wages are very well targeted, and that there might be better ways to helping the poor.

Practice questions

At http://www.mruniversity.com/node/201811?utm_source=PrinciplesAnnot&utm_medium=PQAnnot&utm_campaign=MRUYTAnnotation, accessed 1 May 2016.

1. If a government decided to impose price controls on gasoline, what could it do to avoid the time wasted waiting in lines? Though there are several solutions to this problem, only one of the options below is correct.
   1. Restrict gasoline consumption to high-value uses.
   2. Ban lines for gasoline. 
   3. Create gasoline rations. 
   4. Ban black markets for gasoline.

Atlas topic, subject, and course

The Price System and Price Regulation (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Alex Tabarrok, Why Do Governments Enact Price Controls? (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/government-price-control-definition-rent-control-minimum-wage, accessed 1 May 2016.

Page created by: Ian Clark, last modified 1 May 2016.

Image: Alex Tabarrok, Minute 0:13 of Why Do Governments Enact Price Controls? (7-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/government-price-control-definition-rent-control-minimum-wage, accessed 1 May 2016.