Question

How do price controls interfere with the efficient allocation of goods and services in a market economy?

A) Price controls work to enforce the market equilibrium price for goods and services. B) The government places price controls on goods and services that would otherwise defy the forces of supply and demand. C) Price controls create artificially high or low prices for goods and services, which in turn cause disequilibrium in the market. D) Price controls increase efficiency in markets by sending clear signals to buyers and sellers, thus making the allocation of goods and services easier to facilitate.

Answer 1

C) Price controls create artificially high or low prices for goods and services, which in turn cause disequilibrium in the market.

The main objective of prices controls is to regulate and assign a maximum price for goods and services although free-market talks about according to the offer and demand, the market itself can assign the prices. However the control prices try to create an equilibrium between offer and demand and satisfy both sellers and consumers, but a lot of times the offer is affected because the prices are lower than the demand.