Price controls, although it creates a stable market environment, it does not mean that it is free from bad impacts. Price controls, indeed, overcome the forces of supply and demand in particular periods. The existence of price controls in a free market could balance between supply and demand. However, government price controls might trigger excessive demand during price ceilings and excessive supply during price floors.
Critics often warn that price controls are the major suspect of an imbalance between supply and demand. As a result, it could trigger shortages as well as underground markets. The epitome would be if prices for housing are too low, there might not be enough supply for housing but the demand continues to escalate. In this stance, landlords would be at a disadvantage due to the deteriorating properties since they don’t have enough capital to maintain them.
In addition, price controls become the suspect of quality drops in both product and services. This is because when the price floor is too low, it means that the producers’ revenue will drop. As a result, due to price cutting, they will adjust the quality of their products. In this case, they reduce the size and quality. Many will also limit production and sell inferior products. In a bigger scenario, innovations and products would not appear again on the market due to the R&D limited costs.
Finally, price controls could be good and bad. Firstly, this strategy could make products and services more affordable and reachable for consumers. It could also eliminate monopolies in the market, so that competition could enter. But it still has negative impacts such as shortages and quality decrease.
