Price controls

Price controls are legal limits on the prices that sellers can charge, set by government. A price ceiling sets a maximum, as in rent control or caps on prescription drug prices; a price floor sets a minimum, as in minimum wage laws and agricultural support prices.

Governments have imposed controls during wars and emergencies. The United States used them in both world wars and under President Nixon in 1971 to 1973, when wage and price controls were imposed to fight inflation. Many states have "price gouging" laws that cap price increases after disasters.

Most economists argue that controls generally lead to shortages when ceilings are set below the market price, surpluses when floors are above it, reduced quality and black markets, because prices convey information about scarcity, an idea behind the knowledge problem. The 1970s experience is often cited as a failure. Supporters argue they may protect vulnerable consumers in specific situations, such as emergencies or natural monopolies, and that markets are not always competitive. Conservatives and libertarians typically oppose them as distorting markets, and some on the left have called for temporary controls during periods of high inflation. See rent control.