Many people, primarily of the socialist field of thought, are under the belief that government price control is important for maintaining a fair and equitable economy. They argue that without price control, one vendor may charge exorbitant prices for their goods; another may charge a price so low that they effectively create a monopoly, creating an unfair market for their competitors. For these reasons, they believe that price ceilings or price floors must be imposed by the government. However, there are several flaws in this sort of economic system.

Suppose the government were to impose a minimum price floor for a specific good; for the sake of example, let us suppose that potatoes were now required to be sold at no less than $2 per pound, perhaps in an effort to drive up the incentive for potato production. Potato farmers are initially elated upon hearing this; they had previously been charging substantially lower prices for their product. Potato consumers, on the other hand, are much less happy, knowing they would be paying a much higher price during their next grocery store visit. This would create an increase in potato production by farmers who are hoping to turn a profit on the new law; it would also cause a noticeable dwindle in demand, as fewer consumers choose to purchase the more expensive potatoes. Based on the low potato production prior to the price floor, it seems demand was already far from high. The outcome would likely be resulting potato surpluses; unsold potatoes everywhere, rotting away! This catastrophe is a government-created scrambling of the naturally flowing supply and demand system, which when left uninterrupted, leaves the consumer ultimately in charge of determining prices.

Let us now assume that the opposite problem were to arise: a government price ceiling on a certain product. Continuing with the previous example, suppose that prices had climbed rather high for a pound of taters, likely due to an increase in consumer demand. Believing itself to be the ultimate savior in all areas of human life, the government then reaches in and imposes a new price ceiling: 50¢ per pound! As you might expect, each party has the exact opposite reaction as before; consumers are elated at the potential savings on a product for which there had already been high demand. Producers, on the other hand, are dreading the inevitable decreased profits resulting from the forced low price. When this situation is thought through, the outcome is fairly predictable: potato farmers lose their profit incentive which motivates them to produce the vegetable, ultimately leading to a potato shortage. Consumers, meanwhile, are left with a demand for potatoes becoming increasingly difficult to fulfill due to the shortage.

It is evident based on this example that government price control simply leads to dire consequences, despite seemingly positive results for one or the other party–but never both. In the end, both parties lose: the supply and the demand are mixed around, leading to a confused economy in which shortages or gluts abound. So what is the solution? It is as simple as leaving the market to operate freely; supply and demand will work itself out and prices will always land just where they need to be based on the current wants and needs of the consumers, rather than a government-imposed system which leads to nothing but disaster. It is apparent that government overreach tends to yield only negative results–not only in economics but in all areas of its involvement. 🔹