Price ceilings result in five major unintended consequences, and in this video we cover two of them. Using the supply and demand curve, we show how price ceilings

Price ceilings result in five major unintended consequences, and in this video we cover two of them. Using the supply and demand curve, we show how price ceilings lead to a shortage of goods and to low quality goods. Prices are signals that indicate to suppliers how much is being demanded, but when prices are kept artificially low with price ceilings, suppliers have no way of knowing how many goods they should produce and sell, leading to a shortage of goods. Quality also decreases under price controls. Do you ever wonder why the quality of customer service at Starbucks is generally better than at the DMV? The answer lies in incentives and price ceilings. We’ll discuss further in this video.

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Show 1 Answer (Answer provided by Alex Tabarrok)
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Interesting question! In a government run institution the people aren't customers and so they are seen as a pain more than a source of profit. This is especially true if the users aren't voters or don't have a way of disciplining the government. For example, the US bureaucracy is much more efficient when it comes to citizens than non-citizens.

Lots of things could be said about obsequiousness to the upper administration--perhaps one explanation is that government jobs often pay much more than similar private sector jobs, especially true in India I believe. So people do everything they can to curry favor with their bosses.

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