A Final Word
In this chapter we have examined the effects of government policies to
control prices in otherwise free and competitive markets, and we have
shown that such policies usually have two results. First, there is a
redistribution between buyers and sellers; one group is made better off
while the other group is made worse off. Second, there is a reduction in
the overall amount of economic surplus generated in the market; the
result is that the outcome is inefficient and society as a whole is made
worse off.
The finding that government intervention in otherwise free markets leads
to inefficiency should lead one to ask why government would ever
intervene in such ways. The answer in many situations is that the
government policy is motivated by the desire to help a specific group of
people and that the overall costs are deemed to be a worthwhile price to
pay to achieve the desired effect. For example, legislated minimum wages
are often viewed by politicians as an effective means of reducing poverty
—by increasing the wages received by low-wage workers. The costs such
a policy imposes on firms, and on society overall, may be viewed as costs
worth incurring to redistribute economic surplus toward low-wage
workers. Similarly, the use of output quotas in certain agricultural
markets is sometimes viewed by politicians as an effective means of
increasing income to specific farmers. The costs that such quota systems
impose on consumers, and on society as a whole, may be viewed by some