ARTICLES SUMMARY

Articles Summary

Articles Summary

Price Ceilings Cause Shortages and Higher Costs

The article on Price Ceiling has been written by Dwight R. Lee. He has discussed the impact of a price ceiling on the market forces. He proposes that, coordination between demand and supply does not occur automatically. According to Adam Smith's invisible hand theory, people have their own concerns about their own interests than the interests of other individuals. However, people pursuing their own interests also benefits other individuals too. For a buyer, there is a seller, and for a seller, there is a buyer. The invisible hand theory only works in certain conditions.

Government plays an crucial role in protecting private property, protecting the monetary union, and preventing capricious judicial decisions. All such actions could be carried out by a limited amount of government intervention. The author has argued that if government intervenes even slightly, it disturbs the social cooperation, which is the most desirable outcome for a society. However, government interventions to achieve desired results are quite often. One of such intervention is monitoring and interfering in the market prices of the goods and services. It can take actions to set price ceilings and flooring according to the market condition in the short term.

A customer desires low prices in every situation, so their purchasing power improves, while the producers wants their prices to be high. Hence, it creates distortions and the government has to intervene. When the government imposes a price ceiling, producers cannot increase prices above the limit. This effect could only be useful in the short run, and could have negative consequences in the long run. The price ceiling is usually below the market equilibrium, hence the supply of the goods and services will be limited, which will eventually lead to increase in prices of goods and services. Hence, it is only beneficial in the short run.

The rationale behind price ceiling is the fact that it protects consumers from inflated prices, but one cannot lower the prices by just imposing a ceiling on the prices. Because, producers will not be willing to sell their products and services at a lower cost, so eventually the prices have to be set through market forces, without government intervention. Price ceiling eventually leads to a higher cost, so it could only be implemented in the short run. One more factor that could lead to an increase in cost for the customer is the lower quality of goods supplied by producers due to low prices set by the government. Real World example could be analyzed to understand the impact. When housing and apartment rents are controlled by the regulating authority, the quality of housing and apartments constructed declines (Zodrow, 2011).

Although, price ceilings benefit some consumers, but most people are very concerned about purchasing goods government intervenes. According to the author, price ceilings do harm the customers even though it was designed for customers.

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