Price controls cause resources to be misallocated by:

Question

Quizplus · Accepted Answer

Price controls, such as price ceilings or floors, disrupt the natural supply and demand signals of the market. By forcing a price below or above the equilibrium price, the signals of the willingness of demanders to pay or suppliers to provide are distorted. This leads to a misallocation of resources, where there may be shortages (excess demand) or surpluses (excess supply) of goods or services. Price controls also eliminate the incentives for suppliers to provide or demanders to pay, as they are no longer receiving the market value for their actions. Therefore, choice B, which states that price controls distort the signals of demanders' willingness to pay and eliminates the incentives for suppliers to supply, is the correct answer.

Price Controls Cause Resources to Be Misallocated By