In today’s economic climate, price controls are a controversial topic. Many people are firmly against price controls, while others are firmly in favor of them.
For example, many people oppose the idea of universal health care due to the perceived need for cost controls. Those who support universal health care believe that it can be achieved through government-imposed price controls.
How far should governments go in trying to control prices? Should they try to control prices in other areas such as housing or transportation? How do people come to have such differing opinions on the matter?
As it turns out, there’s a lot of psychological research that can help explain why people feel the way they do about price controls, as well as how they might be effective (or ineffective) in the first place.
This article will discuss some of this research and delve into some of the psychology behind how we perceive price controls, how we perceive their effectiveness, and how we perceive the effectiveness of other solutions.
Price control opponents believe that prices should be allowed to rise and fall according to market forces
These people believe that prices should be allowed to rise and fall according to market forces.
Prices should be set by the supply and demand of a good or service. If the demand for a good or service rises, then the price should also rise.
Those who oppose price controls believe that they distort the natural balance of prices and supply. When the government sets a price for a good or service, it is usually lower than what would occur in a free market. This causes overproduction as more people produce and sell the good or service due to the higher reward.
Those who are opposed to price controls believe that they lead to shortages and surpluses in goods and services. This happens because the production level of goods and services is not determined by their price- it is determined by what level of production is sufficient to meet demand.
Supporters of price controls tend to be those who are least able to afford rising prices
As mentioned earlier, price controls tend to be implemented when there is a widespread sense of panic about rising prices.
This perception of rising prices is often fueled by media coverage of even the smallest price changes, making it harder to gauge what the true inflation rate actually is.
Those who are already struggling to pay for food tend to favor price controls the most. This is because they want the most affordable food possible, and do not want to pay more for it.
Those who oppose price controls tend to be those who can afford any type of food at any price. They may see the benefit of price controls for other foods, but not for their favorite one.
The third group that tends to oppose price controls is those who can afford any food, but know that imposing them does not actually make them cheaper in the long run.
Opponents of price controls tend to be those who are best able to afford rising prices
As mentioned before, price controls tend to hurt those who are less able to afford the rising prices that result from them. Those who are less able to afford the rising prices are typically poor people and small business owners.
Poor people suffer because they cannot afford the higher priced goods due to the limited amount of money they have. They may end up having to go without something they need because it became too expensive due to the imposed price control.
Small business owners suffer because their profits are reduced as a result of the imposed price controls. If a business owner can’t make a profit, then he or she can’t continue operating the business.
Those who favor price controls may do so because they believe that it benefits society as a whole. Some may believe that it helps society by helping those who are less able to afford things, like mentioned before.
Some favor partial price controls while others favor complete price controls
Many consumers feel very strongly about price controls. Some people feel so strongly about them that they will advocate for complete price controls. Other people feel so strongly against them that they will campaign for the complete abolition of all of them.
Why do some consumers tend to favor partial price controls while others tend to oppose them? Part of the answer has to do with what kind of control is being advocated or opposed.
For example, most people would agree that gas prices need to go down. Because of this, many people would support a campaign to control gas prices by reducing what gas stations can charge for a gallon of gas.
Many would also support a campaign to control the cost of electricity by having the government set a baseline rate for it. Both of these campaigns would be forms of partial price controls, and many would support them.
However, when it comes to things like healthcare or education, many people feel very strongly that these things should be entirely free or at least affordable by government intervention.
Some favor time-limited price controls while others favor permanent price controls
Another factor that influences price control favorability is whether the price controls are temporary or permanent. Those who are in favor of price controls tend to prefer them being enforced for a limited time period, such as a few years.
Those against price controls tend to believe they should be permanent so that the company cannot raise prices once the government allows them to.
Those who are neutral may believe that both temporary and permanent price controls can be effective, but only if implemented properly. Those who oppose them generally believe that they only work temporarily due to lack of trust in the government enforcing them.
Prices need to be constantly monitored in order to keep the company from raising them. Permanent price controls may cause companies to shut down due to lack of profitability.
Consumers may prefer some commodities being controlled more than others
A significant factor in price control preference is the type of good or service being controlled.
Consumers tend to prefer the availability of common goods, such as groceries, being controlled less than luxury goods, suchs as jewelry.
Luxury goods are perceived as having higher quality due to their brand name or material and require a higher cost of production. Common goods, such as groceries, have lower quality across brands and require a lower cost of production.
The public tends to perceive that controlling the availability of luxury goods will have less of an effect on the quantity demanded than controlling common goods. This is because people want the good for the brand name or high quality, not just because it is available.
Another factor in preference is whether the good or service being controlled is a necessity or not. The public tends to favor the availability of necessities, such as water and electricity, being maintained more than non-necessities, such as TV and movies.
Price control proponents generally believe that markets fail and government intervention is needed
A common belief among price control proponents is that wealthy people and corporations will always try to take advantage of poor people, thus requiring the government to step in and prevent this from happening.
Another belief is that markets are inherently unstable, so a steady force such as the government must intervene to make things stable.
These two beliefs combined lead many to believe that prices must be enforced by the government in order to stop wealthy people and corporations from taking advantage of the poor, and to ensure stability in the market.
Price control opponents generally believe that markets work well enough on their own with no help from the government, and that government intervention usually makes things worse. They also may believe that taking away price controls will cause further problems, such as shortages.
These beliefs lead many to oppose price controls.
