Answer to Question #178091 in Microeconomics for Amos Mbir

Question

Government price controls can short-circuit the market’s information transmission function. Discuss using appropriate figures.

Answer 1

The government set maximum prices for specific goods to make them affordable. Government price controls can short-circuit the market’s information transmission function since it controls both demand and supply. Price control can lead to the production of inferior goods or even shortages. Price control undermines the integrity of the economic market. Market information helps producers to understand their customers, their needs and what their competitors are doing. When government control market prices ,the producers become reluctant on focusing on their consumer needs and competitors.