Price Controls

AAA

DEFINITION of 'Price Controls'

Government mandated minimum or maximum prices that can be charged for specified goods. Governments sometimes implement price controls when prices on essential items, such as food or oil, are rising rapidly.

Also known as "price floors" or "price celings".

INVESTOPEDIA EXPLAINS 'Price Controls'

History has shown that price controls are, at best, effective only on a very short-term basis. Over the long term, they can lead to shortages, rationing, quality deterioration and black markets.

Consider the price controls placed by the Nixon and Carter administrations on gasoline, which led to long lines at the pump and restrictions on how much gas could be purchased during the 1970s.








Rent control provides another example of the ineffectiveness of price controls. Rent controls, such as those used in New York City, are intended to keep housing prices affordable. Instead, they decrease the supply of rental housing and thereby raise prices of existing rental housing. In a vicious cycle, rent controls discourage new landlords from entering the market and cause existing ones to leave, creating a supply of housing that is less than the free market would allow and causing further upward pressure on housing rental prices. Rent controls also reduce the financial incentives for landlords to maintain and improve their properties, leading to lower quality housing.

RELATED TERMS
  1. Black Market

    Economic activity that takes place outside government-sanctioned ...
  2. Administered Price

    The price of a good or service as dictated by a governmental ...
  3. Price Ceiling

    The maximum price a seller is allowed to charge for a product ...
  4. Price Cap Regulation

    A form of economic regulation generally specific to the utility ...
  5. Market Disruption

    A situation where markets cease to function in a regular manner, ...
  6. Market Distortion

    An economic scenario that occurs when there is an intervention ...
RELATED FAQS
  1. Do the laws of supply and demand ever not apply to markets?

    While the laws of supply and demand act as a general guide to free markets, they are not the sole factors that affect conditions ... Read Full Answer >>
Related Articles
  1. Economics

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  2. Budgeting

    22 Ways To Fight Rising Food Prices

    As food costs rise it can be difficult to stay on budget. Here are some handy tips to spend less at the till.
  3. Options & Futures

    The Consumer Price Index: A Friend To Investors

    As a measure of inflation, this index can help you make key financial decisions.
  4. Active Trading

    What Determines Oil Prices?

    Changes in the price of oil aren't arbitrary. Read on to find out what moves them and why.
  5. Active Trading

    Why You Can't Influence Gas Prices

    Don't believe the water-cooler talk. Big oil companies aren't to blame for high prices.
  6. Economics

    What Determines Gas Prices?

    Gas prices are influenced by more than supply and demand. Find out what determines the price you pay at the pump.
  7. Active Trading

    How Does Crude Oil Affect Gas Prices?

    Find out how this commodity's fluctuating price affects more than just how much you pay at the pump.
  8. Investing

    Crowdfunding: Wide Opening For Tech Investors

    Crowdfunding has dramatically changed investing and opened the door for the public to get in on all types of exciting startups, including tech firms.
  9. Economics

    Mitigation Trade: Making Up For Environmental Harm

    Mitigation banking is a system by means of which the liability of ecological damage is transferred from the permittee to the mitigation banker through a system of credits and debits under regulatory ...
  10. Taxes

    Is It Smart To Get Dual Citizenship?

    Does it ever make sense to be a citizen of the U.S. and somewhere else? Yes, so you can work minus a visa – not so much, if you get drafted into the army.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center