Price and Quantity Controls

Governments can be control freaks. To control things, they often use two tools: price controls and quantity controls.

Price controls are either price floors or price ceilings (or both) that are set by a government. For instance, as technology started hurting farmers (taking their jerbs), the U.S. said okay, okay...we’ll set a price floor for y’all on some agricultural goods. That means the government set an artificially high price on goods. In a free market, the goods would be much cheaper, and more farmers would have had to find new jobs.

So farmers have jobs...but food is now more expensive. Also, farmers are continuing to produce plenty, since they’re getting paid a pretty penny thanks to the price floor. The government buys up all of that extra produce, because nobody else will buy it. There’s lower demand now that those goods are more expensive, artificially.

The other price control is setting a price ceiling—when the government says that you can only charge up to x amount for that good. For instance, rent-controlled areas have price ceilings, telling landlords they can’t take the market rate for renting their property. If you’re one of those property owners, you probably want to get rid of that property now, since the government is preventing you from collecting profits that you would otherwise have without the price ceiling.

Quantity controls are the other way to go: the government controlling quantity instead of price. For instance, a quota is setting a quantity limit on how much of something, like steel, can be imported. Think about the carbon tax system, which uses quotas (there are only so many carbon credits in the system to buy) to create a market for pollution. If you want to pollute more, you gotta buy the carbon credits.