Answer to Question #208431 in Microeconomics for Kyle

Question

Why are price ceilings said to be inefficient? Can the government restore efficiency by imposing a production quota along with the price ceiling? Who benefits and who loses from such a program?

Answer 1

When a price ceiling does not alter market participants' decisions, it is said to be ineffective.

Quotas primarily serve as an incentive for less efficient domestic enterprises to raise output, but they often do not increase efficiency.

Price limitations are apparently used by governments to protect consumers from conditions that could make goods too expensive.