Price Controls

One of the major types of government interventions in markets is price controls. The government intervenes to regulate prices by imposing price controls, which are legal restrictions on how high or low a market price may go for certain products. Price ceiling is the maximum price sellers are allowed to charge for a good or service, whereas price floor is the minimum price buyers are required to pay for a good or service. These price controls may have adverse impacts on productive and allocative (marketing) efficiency. However, price controls are used despite their well-known problems.

Based on the Reading in Chapter 3 on price ceiling and price floor, explain the impacts of the following price control measures.

  • What would happen to the supply and demand of Super Bowl tickets if the government mandated that no more than $20 a ticket could be charged?
  • What would happen to supply and demand if a law passed dictating that kindergarten teachers could make no less than $100,000 per year?

 

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