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. No results found.
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. Economics

    Popular Places Where U.S. Citizens Need A Visa

    A U.S. passport will get you into many countries, but not everywhere. Here's how to visit five of the most popular destinations that require visas.
  9. Economics

    Higher Oil Prices On the Horizon? Maybe Not.

    Despite a decision by some oil companies to reduce the overall supply of oil, a sustained ascent in oil prices might not be on the immediate horizon.
  10. Economics

    How To Pass The U.S. Citizenship Test

    The U.S. citizenship test includes a civics section some states may require high school grads to master. Here's what an immigrant must know to pass it.

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center