Question

3) Discuss price ceilings as an inefficient method to alter market behavior. Use scarcity rent in your answer. Why would governments use this tool?

Answer 1

Price ceilings is inefficient because there is more demand than supply at lower price. Consequently products are not sold at their best price. In other words they don't get opportunity cost. Thus it leds to inefficiency. The market fails even to distribute properly leading to black marketing. Further in addition to failure to account for opportunity cost it neglects scarcity rent I. E addition in cost imposed on future generations by greater exploitation today of a product or resource by a unit . Govts use this tool because they think they are protecting consumers or just to gain popularity and thus more votes