Price Controls Don't Work – But Mask Rationing Is The Exception That Proves The Rule

The Centers for Disease Control and Prevention recommends that people wear a cloth face covering for their nose and mouth to protect others from the spread of the coronavirus. Research shows masks lead to a more than threefold reduction in how much flu virus people spray into the air.

Yet there have been reports for weeks that there are shortages of face masks, both the N95 respirators needed by health workers and the simpler ones worn by the public. While companies have promised to ramp up supplies, those will likely be overwhelmed by demand as lockdowns ease and more people need masks as they return to public life.

Countries such as South Korea and Taiwan have responded to shortages by imposing price controls and rationing.

As an economist who wrote a textbook on price theory and teaches it to undergraduates, I’m generally skeptical about price controls. But not in this case.

Why price controls are normally bad

In economics, the price of a given product generally tends to find its “equilibrium,” where demand and supply are equal.

A shortage of a good typically results from a sudden drop in supply – for example, a factory gets hit by a hurricane – or because its price falls below this equilibrium. At this point, more people will want to buy the product than companies are willing to sell at that price. Normally, the reduced supply would cause the price to rise. But when there are price controls, the shortage remains.

For most goods, it is unwise to impose price controls because it causes companies to produce or provide less of the good, which forces some form of rationing, whether imposed by companies – for example, limiting the number of rolls of toilet paper a customer can buy – or government.

In either case, people who value or may most need a good don’t get it, while others with less need – or simply more money – can get a lot more and even hoard it.

There is a long history of governments implementing price controls and rationing.

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This article is republished from The Conversation under a Creative Commons license.

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