Explain six circumstances under which price controls may be justified in an economy. (12 marks)November 2022

Price controls are government-imposed limits on the price of goods and services. There are certain circumstances under which price controls may be justified in an economy. Some of these include:

1. Market failure: Price controls may be used to address market failures, such as when prices become too high or low due to a lack of competition in a market. For example, price controls may be used to prevent monopolies from charging excessively high prices.
2. Natural disasters: Price controls may be imposed in the aftermath of natural disasters to prevent price gouging on essential goods and services, such as food, water, and shelter.
3. Essential goods and services: Price controls may be used to ensure that essential goods and services, such as medicine and electricity, remain affordable for all members of society.
4. Social welfare: Price controls may be used to promote social welfare by ensuring that goods and services are affordable for low-income individuals and families.
5. Inflation control: Price controls may be used to control inflation by preventing prices from rising too quickly.
6. Strategic goods: Price controls may be used to control the prices of goods that are deemed important for national security or strategic reasons.
7. Public goods and services: Price controls may be used to regulate prices of goods and services that are provided by the government, such as public transportation, to ensure they are affordable and accessible to all citizens.
8. Externalities: Price controls may be used to internalize externalities, such as pollution, by making sure that the prices of goods and services reflect their true social cost.