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Price Controls

In: Action and Choice

Author

Listed:
  • Walter E. Block

    (Loyola University New Orleans)

  • Ivan Jankovic

    (University of Mary)

Abstract

We have seen in Chap. 7 what happens if the actual market price departs from the market clearing price that equalizes supply and demand. Temporary shortages and surpluses result, leading to the self-correction of the market. In the case of a temporary shortage, the price will start inching up, reducing the spread between (higher) quantity demanded and (lower) quantity supplied, eliminating the low-preference buyers and convincing the higher cost sellers to enter the market, until finally the two quantities equalize and price settles at the equilibrium level (Fig. 11.1). With a surplus, the opposite happens, the price starts dropping, eliminating the high cost sellers and allowing the lower preference buyers to enter the market. This reduces the spread between lower quantity demanded and higher quantity supplied until the equilibrium point is reached (Fig. 11.2).

Suggested Citation

  • Walter E. Block & Ivan Jankovic, 2022. "Price Controls," Springer Texts in Business and Economics, in: Action and Choice, chapter 11, pages 169-192, Springer.
    • Handle: RePEc:spr:sptchp:978-981-19-3751-4_11
    DOI: 10.1007/978-981-19-3751-4_11
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