Answer to Question #307820 in Microeconomics for Himanshu

Question

After observing the impact of price controls, a government official commented that Market economy is a good way of organizing economic activity, do you agree or disagree.

Answer 1

• Price controls are government-mandated minimum or maximum prices set for specific goods and services.
• Price controls are put in place to manage the affordability of goods and services on the market.
• Minimums are called price floors while maximums are called price ceilings.
• These controls are only effective on an extremely short-term basis.
• Over the long term, price controls can lead to problems such as shortages, rationing, inferior product quality, and illegal markets.