Price Controls

Price controls – caps and floors – in free markets are interventionist government policies that prevent supply and demand from finding a market-based equilibrium price. Floors can be imposed as a function of competition law to prevent predatory pricers from undermining competition; caps can be imposed to prevent prices from becoming prohibitively high – especially for things like consumer staples like bread or rice in countries with low per capita incomes. Price caps can impact the willingness of suppliers to supply, leading to shortages, but they can also help keep inflation in check. Price floors take away from consumers the benefits of lower prices that would otherwise accrue to them.