Instead of sustainably lowering prices, price ceilings cause shortages, reduce product quality, and can make longer-term inflation worse.
The negative effects of price controls are many. By creating shortages, they often cause people to wait in line, they often cause the quality of products whose prices are controlled to fall, and they can lead to favoritism by suppliers. All those effects remain until the price controls are ended.
Key Points
- A price ceiling creates a government-mandated maximum price that sellers can charge their customers.
- Price controls can lower prices for some consumers but also cause shortages which lead to arbitrary rationing and, over time, reduce product innovation and quality.
- Price controls during the 1970s caused shortages, especially of oil and gasoline. Rapid inflation followed the repeal of price controls.
- Price controls on prescription drugs—such as those imposed by the Inflation Reduction Act of 2022—stunt pharmaceutical innovation, imposing large, long-run costs on Americans that outweigh the short-run benefits of lower prices.
