Price control

When there is a “shortage” of a product, there is not necessarily any less of it, either absolutely or relative to the number of consumers.

Just as price fluctuation allocate scarce resources which have alternative uses, price controls which limit those fluctuations reduce the incentives for individuals to limit their own use of scarce resources desired by others.

Rent control reduces the rate of housing turnovers.

Shortages are a price phenomenon. Typically, the rental housing stock is relatively fixed in the short run, so that a shortage occurs first because more people want more housing at the artificial low price. Later, there may be a real increase in scarcity as well, as rental units deteriorate more rapidly with reduced maintenance.

One of the crucial distinctions to keep in mind is the distinction between an increased scarcity---- where fewer goods are available relative to the population--- and a shortage as a price phenomenon. There can be a growing shortage without an increased scarcity or a growing scarcity without a shortage.

Shortage means that suppliers no longer have to please the buyers.

Hoarding: individuals keep a larger inventory of the price-controlled goods than they would ordinarily under free market conditions, because of the uncertainty of being able to find it in the future. Hoarding increases the severity of the shortage because resources cannot be shifted efficiently.

More people make more claims on doctors’ time under price control, leaving less time for other people with more serious, or even urgent, medical problems. (Quality deterioration)

When there is a surplus, it means that people don’t have enough money to buy them.