PRICE CONTROLS

A form of government intervention in the economy in which a government agency uses its law-making power to regulate the prices at which otherwise voluntary private exchanges may take place. The government agency may attempt to fix and enforce the exact prices at which a particular good or service may be sold (as for example when state regulatory commissions fix the rates for electricity, gas or water to be sold by monopoly utility companies in particular geographic areas). Alternatively, the government agency may be content to set "ceiling prices" or "floor prices" for particular goods or services. Ceiling price controls set a maximum price that may be charged but do not prohibit transactions at lower prices below the ceiling price (for example, rent control). Floor price controls set a minimum price that may legally be charged but do not prohibit transactions at higher prices above the floor price (for example, minimum wage laws).