Question

What is price control?

1) A policy that limits the amount that can be charged for a good or service
2) A policy that encourages competition in the market
3) A policy that allows businesses to set their own prices
4) A policy that regulates the quality of goods and services

Answer 1

Price control is a policy that involves government laws to regulate prices instead of letting market forces determine them. It can take the form of either a price ceiling or a price floor.

Step-by-step explanation:

Price control is a policy that involves government laws to regulate prices instead of letting market forces determine them. It can take the form of either a price ceiling or a price floor.

A price ceiling is a maximum price set by the government to prevent the price of a good or service from rising above a certain level. It is typically used to protect consumers from excessive prices.

For example, in times of crisis, such as during natural disasters, the government may implement price ceilings on essential goods like water and food to prevent price gouging. However, price ceilings can lead to shortages if the market equilibrium price is higher than the ceiling.