Mankiw's Principles of Microeconomics Chapter 6

In April there was a flurry of blog posts from economists on price controls and inflation in Venezuela. Read this article from the Times: http://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html?_r=1 .

How does this relate to the theories from the chapter? 

One of the ten principles of economics is that markets are a good way to organize economic activity. When the topic of price controls comes up, it is assumed by most economists that a competitive free market will utilize price as a means to ration. In the case of the Venezuelan government, while their intent was to make food affordable for the poor in a market where income disparities between the rich and poor were rather wide, price control actions actually caused suppliers to not be motivated by profit, which is counter intuitive to a capitalistic economy. 

In some cases, the imposed price controls caused suppliers to stop producing goods that had inelastic demand, goods that modern society views as necessities such as liquid milk. The situation was exacerbated when the Venezuelan government tried to correct the issue by increasing the supply of currency within the country, in effect increasing inflation at the rate of nearly 28% in a year.

Now consider a different case.  After Hurricane Katrina speculators brought in bottled water, but charged quite a lot for it.  What might have happened had price controls been imposed?  Where does the concept of fairness fit into this theory?

During Hurricane Katrina potable drinking water was in short supply, at the same time since this product is a necessity of life demand is constant. As with any inelastic product, the impact of price controls affects the black market for the product. A decrease in supply through normal sales channels leads to increased demand on the black market along with increased prices. If the government would have imposed temporary price controls on water it would have limited the black market since speculators would have had more competition. When we think about fairness in the potable water market during this hurricane, questions arise about the people’s right to products that are essential to life. In my opinion, setting price controls may have decreased the amount of civil unrest. Then again, drafting such laws is irrelevant unless they can be enforced even in times of extreme disaster.