I wrote a post some time ago titled: 30 Basic Points on Economics.
Point #8 was:
This is not a political statement. It is evident, actually.
What is a price ceiling?
It is just that – a ceiling on prices.
Usually, it is a law that states prices may not be above a certain level.
It is against the law to charge more than $5 for a gallon of gasoline.
It is against the law to charge more than $5 for a bottle of water.
Since prices allow supply and demand to balance themselves, we know that price ceilings disrupt this equilibrium.
In short, as I have already said: Price ceilings lead to shortages.
If the average price of computer programmer pay, based on market forces, leads to compensation of $100,000 per year – a law capping computer programmer pay at $50,000 per year will not be without consequence.
For only $50,000 per year, there will be much fewer qualified computer programmer candidates willing to work.
At the same time, for this lower price, many new companies will want to hire a qualified computer programmer candidate for the new bargain price.
Fewer people are willing to work for the new price, and more wish to hire at the new price.
This is, by definition, a shortage of computer programmers.
Like I said: Price ceilings cause shortages.
Just don’t talk about price ceilings on bottles of water after a natural disaster.
Say $1 a bottle is the natural price, and supplies, along with supply lines, are temporarily wiped out due to a hurricane or earthquake.
Now $8 for a bottle of water balances supply and demand – but there is a price ceiling at $3 per bottle.
Now you have a shortage of water in a disaster area – because politicians are more interested in pointing fingers and calling out “greed” than they are getting water to people that need it.
Never-mind the ability to charge $8 for a bottle of water would cause others to rush in with more water supplies, bringing the price of water down quickly.
But now you are into politics.
And who cares about politics.
It does not matter the case: Price ceilings cause shortages.