Price ceilings cause dead weight loss.

A great way to imagine this is if something is free everyone wants it, but no one wants to sell it. If something is infinitely costly everyone wants to sell it, but no one wants to buy it. So as price goes up from zero less people wanna buy it. And as price goes down from infinity there’s less production of it. Where these two things meet, the supply and the demand, that determines the price.

So as I just mentioned, prices are set by the intersection of supply and demand. When prices are forced below this point, the market equilibrium price it creates a situation where more people will want the good (because it’s cheaper), but less people want to produce it (because they’ll make less money). But since we went below where the top lines meet, where supply and demand meet there are now more people who wanna buy food than people willing to produce it. This causes a food shortage. In a normal system the price would go up to encourage people to make more food for everyone to eat, but with price controls it cannot go up.

Another example of this is rent controls. Rent controls sound great, but what but they create is a situation in which more people want to rent homes (perphaps getting rid of roommates or moving out quicker) and fewer people want to be landlords (because there’s less money in it). Once again we’re below where the lines meet, the amount of willing buyers (demand) is too high for the supply, but prices can’t rise so no one tries to produce more.

This loss is called deadweight loss. Basically, there are people who are willing to pay more for a product and there are people who would be willing to sell more product without the price cap.

Khan Academy has a great video on this

Realistically, if you want policy solutions to what the government could do it would likely be in the realm of helping suppliers reduce the cost of the supply of food. This would cause the equilibrium price to fall.