Answer to Question #293169 in Macroeconomics for Bajwa

Question

According to the New York Times article, the Venezuelan government "imposes strict

price controls that are intended to make a range of foods and other goods more

affordable for the poor. They are often the very products that are the hardest to find"

Draw a graph to illustrate the welfare impacts of this policy and why the statement is true.

Answer 1

Solution:

When the government imposes strict price controls on goods, it would make them hard to find since producers would not want to supply as much as they did before the price controls.

This will result in food shortages and a loss of economic efficiency in the society due to deadweight loss.

 

This is depicted by the below graph: