Question

Price controls are often put in place because the market equilibrium may not fairly distribute goods...

Price controls are often put in place because the market equilibrium may not fairly distribute goods and services. Using the concepts of efficiency, equality, and dead weight loss, explain when price controls are good/bad for society.

Homework Answers

Answer #1

Market equilibrium price might not be fair in the society as it would lead to the many sections of society becoming mute spectators. they would not be able to afford such a high price.

The price control can lead to black-market activities and there would be a shortage of goods or services in the market. it will create the deadweight loss and efficiency shall be sacrificed here.

The price control will not be profitable if the economic activities have positive externalities. The price control would keep the production lower and output would become largely shorter than required for internalizing the positive externalities.

the government can provide subsidies to vulnerable section to make the production and distribution of more equitable and fair.

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