respond in different situations. Two of these principles, which we have already introduced, are the laws of

demand and supply.

Governments can pass laws affecting market outcomes, but no law can negate these economic principles.

Rather, the principles will become apparent in sometimes unexpected ways, which may undermine the intent

of the government policy. This is one of the major conclusions of this section.

Controversy sometimes surrounds the prices and quantities established by demand and supply, especially for

products that are considered necessities. In some cases, discontent over prices turns into public pressure on

politicians, who may then pass legislation to prevent a certain price from climbing “too high” or falling “too

low.”

The demand and supply model shows how people and firms will react to the incentives that these laws provide

to control prices, in ways that will often lead to undesirable consequences. Alternative policy tools can often
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