Government regulation in the form of price ceiling and price floor creates shortages. The shortages decrease the amount of welfare and cause deadweight losses. But the shortages enhance the formation of the shadow market which diminishes the amount of shortages and removes the deadweight losses. The author suggests a method of calculating maximum and minimum scale of a shadow market in contemporary world economy.

state regulation, shadow market, social welfare, shortage, deadweight loss, price ceiling, price flooring, transaction costs