What is Price and what are Price Controls?

What is Price?

Price is how much it costs to purchase a good/service.

Importance of Price

Holding supply equal, price is a measurement of demand. The higher the demand, the higher the price is bid up. When the price increases, fewer people want to buy it. The only people willing to buy it at the elevated price are the people who want it the most. I.E. The person willing to pay 100 dollars for a pen wants it more than the person who is only willing to pay 50 cents for that same pen. Therefore, the price system will always direct goods/services towards the person who wants it the most. This is assuming that the potential purchasers’ income levels are not the limiting factor in purchasing decisions.

In the other direction, the lower the demand, the lower the price of the good/service. When the price decreases, more people want to buy it. I.E. If a watch is marked 25% off, more people will buy it because of the good deal. The price system therefore causes more people to have the product. In both directions, the effect of price is to cause supply to equal demand.

What are Price Controls?

Price controls are restrictions on the free movement of price. They can take the form of price floors or price ceilings.

What is a Price Floor?

A price floor is a minimum price that is allowed to be charged for a product. For example: the minimum wage is an example of a price floor.

Effect of a Price Floor

The effect of a price floor is to cause excess supply. By preventing price from falling past a certain number, supply will be held over demand. In the case of a minimum price for the cost of labor, fewer people will purchase labor.

What is a Price Ceiling?

A price floor is a maximum price that is allowed to be charged for a product. For example: President Nixon imposed a price ceiling on the cost of gasoline.

Effects of a Price Ceiling

The effect of a price ceiling is to cause excess demand. Another way of saying that is that it will cause supply shortages. By preventing price from rising past a certain number, demand will be held over supply. More people will want it than is available to provide. The price ceiling means that people can’t complete for the scarce good by bidding up the price. Thus the only way to compete is by spending time. As a result of President Nixon’s price ceiling on gasoline, there were massive lines at the gasoline pumps that lasted many hours. Many people who wanted gasoline couldn’t get it.

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

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What is Price and what are Price Controls? — 1 Comment

  1. A price floor is a base price settled by the law. A price at or over the price floor is legitimate; a price beneath it is most certainly not.

    Price floors are normally summoned when society feels that the free working of the market framework has not given an adequate pay to specific gatherings of asset providers or makers.

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