Prices In A Controlled Economy

One of the things that have a huge impact on the economy are prices. Prices are what businesses and companies charge people for certain goods and services. There are many factors that go into determining the prices of things such as, supply and demand, competition in the market, and how much people are willing to pay for things. Many people tend to think that price and cost are the same thing, but they are not. Price is not equal to the cost of a good. The cost of something changes from person to person based on his or her needs. An example used by Professor Williams was that, If a barber shop close to you chargers 20$ for a haircut, but a barber shop much further away charges 5$, the barber shop further away may have a lower price but it …show more content…
No economic system can be completely perfect, you must look at what would be better for the people for the people overall. Some of the consequences of prices in a free economy is that the prices are limited to supply and demand a good or service. This means that prices you must rely also rely on competition between different businesses and companies to make allow innovation to eventually make goods and services cheaper. With a controlled economy, prices can be artificially raised and lowered, but this also can cause major problems. If we look at the Soviet Union, they could not keep track of all the prices and how it affected the entire economy as a whole and it ruined their economy. Another problem with prices in a controlled economy is that it doesn 't provide enough incentives for businesses to provide super high quality goods since the price of the good is lowered which would cause people to buy the product anyways …show more content…
These lowering or raising of prices are called price "ceilings", meaning prices can 't rise above certain levels, and price "floors", meaning prices can 't fall below a certain level. According to Sowell, "A policy intended to make housing affordable for the poor has had the net effect of shifting resources toward the building of housing that is affordable only by the ... rich (45)". Although this seems like a good idea, especially price "ceilings", these policies often have unintended consequences that hurt the middle-class and lower income families. One of these unintended consequences is the effect that they have on supply. If we look at the effect the price ceilings on rent have, we can clearly see that they do more harm than good for the lower income families. These policies cause an allocation of resources to luxury homes and commercial properties because these things tend to be exempt from price controls. This means less resources are being used to build apartments and homes to keep up with the demand because of the new artificially low prices. Also since the price control of rent creates demand for apartments, landlords have less incentive to maintain go upkeep of the premises since it will sell