What are Price Controls?

Price controls refer to government regulations that set a legal minimum or maximum price for a product or service in the market. When a government imposes these controls, it can either establish a price floor, which is the minimum price that can be charged for a good, or a price ceiling, which is the maximum price that can be charged.

For example, a price ceiling might be implemented to protect consumers during a crisis by preventing prices from rising excessively, while a price floor might be established to ensure that producers can cover their costs and maintain a livelihood, such as the minimum wage in labor markets.

This intervention contrasts with market-driven prices, which are determined by the forces of supply and demand without government interference. Price controls can lead to various economic outcomes, including shortages if prices are set too low (as suppliers may not find it profitable to produce at that price) or surpluses if prices are set too high (as consumers may be unable to purchase at that cost).

Therefore, the definition of price controls aligns directly with the concept of legal price limits established by the government, emphasizing its role in economic regulation.