The problem with price controls
By Evan Panangottu
web posted November 4, 2024
In today's world, there is a growing problem. That problem is the problem of inflation. In a nutshell, inflation is the increasing cost of goods and services. Now, it's becoming harder for the middle class to purchase what they want, and even harder for the lower class citizens to purchase what they need. But fear not! Presidential Candidate Kamala Harris is proposing a solution to control price gouging laws. That's great! We will stop getting cheated out of the money we worked for! ………right? In reality, that's hardly the case. As the saying goes, money doesn't grow on trees. While on the surface, it might seem great that the Presidential Candidate is doing this, there are certain factors that need to be addressed. Factors that are unavoidable, and could lead to consequences worse than the rising price.
Before we start getting into the main gist of things, we need to define some basic terms and get up to speed on some basic economics. In economics, one of the most fundamental tools is the Supply and Demand curve. This simple tool helps economists simplify the complexities of the market and aids them in making predictions about the future. A supply and demand graph is made of two parts, the supply curve, and the demand curve.
The x-axis represents the quantity, and the y-axis represents the quantity. As you can see, the demand curve is curved downwards. When the price starts increasing, people start to demand less and less of a product. Intuitively, this should make sense, seeing as people would rather not pay more for the same product they could get at a lower price. The supply graph shows the opposite, its an increasing curve. Logically, as producers increase their quantity of supply, they charge higher so as to make a profit. The market equilibrium is the point where both the quantity demanded and the quantity supplied intersect. This means it is the price where producers can make a profit, and where consumers are satisfied buying. Now that we have some basics out of the way, let's look at the fundamental flaw of Harris' price ceiling plan.
Like we discussed before, the equilibrium price is the price where buyers are able to keep up with demand and make a profit. When the price gets too high or too low, it leads to a surplus, or a shortage, respectively. A surplus is when producers have extra goods that they're unable to sell because it's priced so high, this forces producers to lower the good's price in order to make a profit. On the other hand, a shortage is where there is too much demand with too little goods. Because producers are unable to keep up with the demand, they are forced to raise prices to lower demand. The main problem of Harris' argument lies here. By its definition, a price ceiling is a limit to which producers can set their prices. If their price goes above said limit, they are not allowed to sell it. The main problem with this is the idea of shortages. If the price ceiling is underneath the market equilibrium, it would create shortages leading to less availability of a good or service. By extension, this would lead to less of an availability of the goods or services that were supposed to be supported. Another problem is the development of black markets, where people illegally sell items at a higher price, which is one of the difficulties of enforcing price ceilings. But I wouldn't nitpick at a policy without offering a solution……
After reading all this, you might realize how poor this policy is. So, are there any options? Glad you asked. A better way to tackle this problem is through government subsidies. Subsidies are a type of payment from the government to certain businesses. These payments help keep prices low by providing extra money for producers to produce more. While this is a good idea, one of the drawbacks is that it's pretty expensive. These prices may float around trillions of dollars. While the subsidy may not seem pretty, it is definitely a step-up from price floors.
While most of these plans have some pretty bad drawbacks, remember there is no ONE perfect plan. The market is an infinitely complex system of human irrationality, emotions, and its just a plain mess. While it is hard to create a perfect model, the supply and demand graph is one way to help model it. Another benefit is the graph being able to model such policies, like a price floor or ceiling. Like all things, the best way for the market to grow is time. Allowing the economy to cycle is the natural method of growth. Time is one of the best miracle workers. 
Evan Panangottu is a high school AP Economics student and this is his first contribution to Enter Stage Right. (c) 2024 Evan Panangottu
