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Fettered Markets of Supply and demand

Supply and demand also do not affect markets nearly as much when a monopolyexists. The U.S. government has passed laws to try to prevent a monopoly system, but there are still examples that show how a monopoly can negate supply and demand principles. For example, movie houses typically do not allow patrons to bring outside food and beverages into the theater. This gives that business a temporary monopoly on food services, which is why popcorn and other concessions are so much more expensive than they would be outside of the theater. Traditional supply and demand theories rely on a competitive business environment, trusting the market to correct itself.

Planned economies, in contrast, use central planning by governments instead of consumer behavior to create demand. In a sense, then, planned economies represent an exception to the law of demand in that consumer desire for goods and services may be irrelevant to actual production.

Price controls can also distort the effect of supply and demand on a market. Governments sometimes set a maximum or a minimum price for a product or service, and this results in either the supply or the demand being artificially inflated or deflated. This was evident in 1979 when the U.S. temporarily capped the price of gasoline at about $1 per gallon. Demand increased because the price was artificially low, making it more difficult for the supply to keep pace. This resulted in much longer wait times and people making side deals with stations to get gas.