Price controls will tend to cause mis-allocation of resources because the cost of production (or opportunity) does not match market prices any more.
Explanation:
Price controls can be as high and low prices as possible. You can control demand and balance the market whether above or below it:
- Higher prices may reduce food costs and make it easy to buy, but the downside of high prices can lead to a decline in supply and a shortage.
- The recipients of prices may increase the minimum prices..
- In farming, they were used to increase farmers' incomes. Minimum prices however lead to surplus supplies, which mean the government must buy surpluses.
