Final answer:
Price controls are government interventions to regulate market prices, often created to address perceived unfairness, but can lead to market inefficiencies such as shortages or surpluses.
Step-by-step explanation:
Price controls are not established by a business with monopoly power but are government laws that regulate prices instead of letting markets determine them. They are often enacted when policymakers feel the market price is unfair, but price controls can be counterproductive by creating shortages or surpluses, signaling inefficient allocation of resources. This is due to the disruption of the natural equilibrium that flexible prices can achieve among different markets. For example, when the price is set below the equilibrium, a shortage can occur because the lower price increases demand while discouraging supply. Conversely, setting a price above the equilibrium may lead to a surplus, as the higher price discourages buyers but encourages sellers to produce more, leading to excess supply.
The proverbial analogy of "Don't kill the messenger" relates to the notion that interfering with price signals in the market can have unintended negative consequences, much like the refusal of messengers to deliver news after a messenger has been killed for bringing bad news.