In an effort to fight inflation of 18 percent per year in Venezuela, President Hugo Chávez has instituted price controls on most basic foodstuffs. Which of the following is the likely outcome of these price controls?

Question

Quizplus · Accepted Answer

Price controls often lead to shortages and a decrease in production of the price-controlled items, as firms have less incentive to produce them at the lower price. Instead, they may choose to produce other items that are not subject to price controls. This could ultimately exacerbate the problem of food shortages and inflation.

In an Effort to Fight Inflation of 18 Percent Per