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- [Alex] We conclude
our discussion of price controls

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by talking about price controls

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and communism, or planned economy.

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This will be brief 
because the idea is pretty simple.

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We've already looked
at all the effects

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of price controls
in different markets.

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But we can think about communism 
as being in some ways

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a system of universal
price controls.

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Everything is controlled 
by the government.

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The price of all goods 
is controlled by the government.

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So, if a single price control 
can have bad effects,

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what happens when you control 
the prices of all goods?

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Let's take a look.

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Let's just remind ourselves

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of some of the important effects
of price control

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of both ceilings and floors.

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Shortages and surpluses,
depending upon whether

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we have the price 
below the market price

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or the floor above the market price.

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Reductions in product quality 
or sometimes too much quality,

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too much waste.

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Wasteful lines
and other search costs.

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Loss in gains from trade,
and misallocation of resources.

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Now communism, a command economy,

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can be thought of as a system 
of universal price controls,

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price controls on all goods.

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And we saw exactly
these five elements

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occurring in countries

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which had universal price controls, 
such as the Soviet Union.

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It was common for some goods 
to be in shortage

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while other goods had surpluses.

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Low-quality goods for most, 
with wasteful quality for other,

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wasteful lines
and other search costs.

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During the Soviet Union
communist period,

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it was common for women
to spend, on average,

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two hours of every single day,

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weekdays and weekends,

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just lining up
to get consumer goods.

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Clear loss of gains from trade 
and a misallocation of resources.

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So it was very common 
in the Soviet Union

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to spend lots of resources 
producing agricultural products,

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and then not have the trucks 
to bring those products to market.

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It was common
to be producing radios,

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have everything you need
to produce the radio

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except for one single part, 
which was in shortage,

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so you could not produce the radios.

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Remember the situation
we described for heating oil

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in the United States
during the 1970s,

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when in some parts of the country 
there was plenty of heating oil.

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There was enough heating oil

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so that people were heating 
their swimming pools

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while in other parts of the country

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there wasn't enough and people 
were shivering in their homes.

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Those types of misallocation 
of resources were the norm,

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were normal,

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were everyday occurrences 
in the Soviet Union

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during its system of communism,

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or a command economy,
or universal price controls.

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All of these issues came to affect 
an entire economy.

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In short, what communism did really

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was a substitution
of planned chaos,

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a chaotic economic system,

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instead of having
market coordination.

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Okay, thanks very much.

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That will conclude our lectures 
on price controls.

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- [Narrator] If you want 
to test yourself,

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click "Practice Questions,"

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or if you're ready to move on,
just click "Next Video."

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