What is Price Control?

Price control refers to a direct measure on the part of the Government in fixing the prices for achieving certain macro economic goals like social welfare, efficient resource allocation, prevention of exploitation of the consumers etc.

The Price Control may be informal or formal. In case of informal price control the producers voluntarily agree to regulate the prices which are within limits suggested by the Government whereas under formal price control, the prices are statutorily fixed by the Government and have to be accepted by the producers. The government regulation that makes it illegal to charge a price higher than a specified level is Price ceiling. There are two types of price ceilings: one is set above the equilibrium price and one that is set underneath. The one that is set above the equilibrium has no effect because it does not constrain the market forces. The one that is set underneath the equilibrium has a major effect on the market because it aims to prevent the price from regulating the quantities demanded and supplied.

The Price Control may be total or partial. In case of total price control the price of the entire stock of output is enforced and administered by the Government through a Public Distribution System. For example: In case of any particular drug produced by a private sector the price control is total. This is also referred to as mono-pricing of the commodity. In case of partial price control, the Government directly fixes the price of a part of the production of a commodity and arranges for its distribution may be through fair price shops or via the systems of rationing. The rest of the stock is allowed to be sold in open market at any price which is determined by the free play of market mechanism. Partial control therefore acquires the form of dual pricing.

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