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Content: not all buyers will be able to purchase the good
Normally, buyers would compete with each other by offering a higher price. If price is not allowed to rise, buyers must compete in other ways
Some buyers may be willing to bribe sellers in order to obtain the good
Buyers can also compete with each other through their willingness to wait in line. Bribes and waits both lead to a total price that is greater than the controlled price, (but they are different)
The total value of wasted time is represented by the area between the horizontal lines at the price that buyers are willing to pay and the controlled price (ceiling) and the vertical line at the quantity supplied at the controlled price. Lost Gains from Trade
Price controls reduce the gains from trade
Price ceilings set below the market price cause Qs to be less than the market Q
When Q is below the equilibrium market Q, consumers value the good more than the cost of its production
This represents a gain from trade that would be exploited (if the market were free). Deadweight loss is the total of lost consumer and producer surplus when all mutually profitable gains from trade are not exploited. Price ceilings create a deadweight loss by forcing Qs below the market Q
Buyers and sellers would both benefit from trade at a higher price, but cannot since it is illegal for price to rise
Price ceilings reduce the gains from trade
Deadweight Loss = Lost Consumer + Lost Producer Surplus
Misallocation of Resources
Price controls distort and eliminate incentive - leading to a misallocation of resourced
Consumers who value a good most are prevented from signaling their preference (by offering sellers a higher price)
So producers have no incentive to supply the good to the "right" people first
As a result, goods are misallocated
Price controls prevent resources from flowing to their highest valued uses
Rent Controls
A regulation that prevents rents from rising to equilibrium levels
Rent control is a price ceiling whose effects worsen over time
No one wants to build new apartments if the rents will be artificially low
The shortage is smaller in the short run than in the long run
Arguments for Price Controls
The general public may not understand the nasty side-effects of price controls
Shortages may benefit the ruling elite
Benefits of the ruling elite
In the former USSR, the communist party elite used Blat to obtain goods
Blat = having connections that can be used to get favors
The party elite can use their connections and power to obtain goods for themselves or others
Without such leverage their power dissipates
Universal Price Controls caused widespread and persistent shortages in the USSR
Price Floors
A minimum price allowed by law
Price floors are not as common as price ceilings
Four Common Effects of Price Floors
Surpluses 
Lost gains from trade (deadweight loss)
Wasteful increases in quality
A misallocation of resources
Surplus
When prices are held above the market price (price floor) quantity supplied exceeds the quantity demanded
Lost Gains from Trade
Price controls reduce the gains trade (create deadweight losses)
Wasteful Increases in Quality
Price controls that create surpluses lead to wasteful increases in quality
The quality waste is represented by the area between the willingness to sell and the controlled price (floor) and to the left of the vertical line at the quantity demanded at the controlled price 
If they can't lower the price, sellers will find other ways to compete
Higher quality, but would prefer a lower price
Price floors encourage sellers to waste resources: higher quality than buyers are willing to pay for
Misallocation of Resources
Price controls misallocate resources by allowing high-cost firms to operate and by preventing low-cost firms from entering the industry
Regulation prevented Southwest (and 79 other firms) from entering the national market
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