Prices, Price Ceilings, and Subsidies

Originally posted at on May 3, 2011

There’s an old saying that if you lay all the economists in the world in a straight line, you still wouldn’t reach a conclusion. That is very true on many matters economic, but there are a few instances where universal agreement exists. Two of those instances are the effects of price ceilings and subsidies. However, many economists still deny that specific price ceiling and subsidies will be harmful, because… well they never really say. Sometimes they point to an empirical study for “proof”, but for every empirical study proving one thing, there is another one that proves the exact opposite. So we must rely upon theoretical and analytical tools, to obtain logical answers to difficult and intertwined phenomena. Here we’ll examine the role of prices in the economy, and how their manipulation never has the effect intended. Continue reading “Prices, Price Ceilings, and Subsidies”