From the first article, we have learned that the price control could be a benefit for customers since the products would be more affordable. But there are actually many economic side effects affecting the government price control. Although price control could lead to market stability, it triggers many other problems. Throughout history, major problems created by price controls are shortages, rationing. Illegal markets, and product quality deterioration. Illegal markets could happen because the supply would be going through unofficial channels.
Shortages in this case is a situation where quality demand is higher than quality. The causes leading to shortages are increase in demand, decrease in supply, and government intervention in price control. Rationing on the other hand is the condition where there is a control of good or service distribution due to scarcity. It is a government mandate done at the level of local and federal. Most conditions of rationing occur in export or import restrictions, recession, and war. When the price is too low, it could also be a disadvantage for producers. So, the producers could cut the quality in order to fit in the controlled price.
Price control is not government recent practice. Throughout history, Egyptian authorities had adopted the practice of price controls thousands of years ago to distribute grain. Other civilizations like Greek, Roman, and Babylonians also implemented price controls a long time ago. In modern times, the implementation of price control might perhaps begin during the times of war and revolution.
During colonial time in the U.S. George Washington’s army controlled prices affecting critical shortages. Government kept interfering with limits on producers’ prices on products and services. In World War 1 and II, the U.S. government also implemented price caps especially on energy to deal with the crisis.
