Changes

Controls on prices (and also wages) were also imposed to control inflation (increases in all prices) in the early 1970s.  A war in the Middle East, and assistance in that war by the United States of Israel, caused the Arab nations to reduce their supply of oil to us.  That created gasoline shortages and increased energy costs, which then drove up inflation.  Price controls were designed to limit the increases.  But as the graph below illustrates, price controls create shortages:

Controls on prices (and also wages) were also imposed to control inflation (increases in all prices) in the early 1970s.  A war in the Middle East, and assistance in that war by the United States of Israel, caused the Arab nations to reduce their supply of oil to us.  That created gasoline shortages and increased energy costs, which then drove up inflation.  Price controls were designed to limit the increases.  But as the graph below illustrates, price controls create shortages:

[[File:Price control curves 0001.jpg|350px]]

[[File:Price control curves 0001.jpg|800px]]

When a price control causes a difference between the supply quantity and the demand quantity, it is the lower quantity that becomes the market.  The market can never be more than the lesser of the quantity in supply or quantity in demand.  Because the quantity supplied is much less than the quantity demanded, a shortage results.

When a price control causes a difference between the supply quantity and the demand quantity, it is the lower quantity that becomes the market.  The market can never be more than the lesser of the quantity in supply or quantity in demand.  Because the quantity supplied is much less than the quantity demanded, a shortage results.