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That is not so when an artificial distortion intervenes. With a 50 percent tax based on selling price, an item that costs $1.50 to the buyer is worth only $1.00 to the seller. The tax creates a wedge, mentioned earlier, between the value to the buyer and the return to the seller. The anomaly thus created could be eliminated if the distortion were removed; then the market would find its equilibrium at some price in between (say, $1.20) where the product’s worth would be the same to buyers and to sellers. Whenever we start with a distortion, we can usually assert that society as a whole can benefit from its removal. This is epitomized by the fact that buyers gain as they get extra units at less than $1.50, while sellers gain as they get to sell extra units at more than $1.00.

Many different distortions can create similar anomalies. If cotton is subsidized, the price farmers get will exceed, by the amount of the subsidy, the value to consumers. Society thus stands to gain by eliminating the subsidy and moving to a price that is the same for both buyers and sellers. If price controls keep bread (or anything else) artificially cheap, the predictable result is that less will be supplied than is demanded. Nine times out of ten, the excess demand will end up being reflected in a gray or black market, whose existence is probably the clearest evidence that the official price is artificially low. In turn, economists are nearly always right when they predict that pushing prices down via price controls will end up reducing the amount supplied and generating black-market prices not only well above the official price, but also above the market price that would prevail in the absence of controls.