Price Ceilings: Shortages and Quality Reduction
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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Administration in government run institutions in India is also very unpleasant to deal with. They are regularly rude to the people they are providing a service to. Your logic explains why stores in communist countries might be unpleasant to their customers, but why would people in government run institutions where the service does not involve an exchange of money also be so rude?Moreover, I have seen that lower administration in India are extremely obsequious to the upper administration, there is a very common tendency to show servile behavior to one's boss. Why might this be? Can economics explain this?
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.
Dear Dr. Tabarrok and Dr. Cowen, I love your videos I just want to point out one thing (that someone pointed out to me).
You say that 2" X 4" lumber was reduced in size in the 1970s because of Price controls. Someone told me that is false and I asked him for proof which he provided. Do you have any evidence backing up your claim? I am curious now. Here is the evidence he provided me: