Question

Answer the following questions with short paragraphs. Use economic reasoning to defend it. Make sure to answer all parts!

Price controls are often instituted in reaction to perceived “unfairness” in market outcomes. Why are economists critical of using price controls? What solutions might an economist suggest instead of a price control?

Answer 1

Price controls are enforced by governments,selling restrictions on prices of good and services.most economists have agreed that government controls on prices are not so effective,they neglect the idea of price control as it distorts the resource allocation.

Reducing the price below determined market levels will maintain the demand but failed to meet the supply,which will result in worse shortage for those consumers down the line.the two methods of price control is price cieling and price flooring,price ceiling which cause shortages and prevent increase in price of goods from exceeding a limit and price floors which restrict the price of goods below a certain minimum which leads to surplus.

A solution to maximum price is to increase the supply of housing and solutions to minimum price is to offer subsidies.

A non binding price control is not a issue for economie.if we set higher level of price ceiling than market equilibruim we can prevent the effect on price

Next solution is to invest in reasearch market