When the Covid-19 pandemic broke out, the price of face masks increased sharply. Suppose that the government had imposed price controls on face masks. How would that affect economic efficiency?

Question

Quizplus · Accepted Answer

Price controls, such as a price ceiling on face masks during a pandemic, typically lead to a shortage, not excess supply, because the controlled price is often set below the market-clearing price. This results in the quantity demanded exceeding the quantity supplied. At the market equilibrium under a price control, it's not that marginal benefit is less than marginal cost; rather, the price control prevents the market from reaching its natural equilibrium where marginal benefit equals marginal cost. Therefore, none of the provided options accurately describe the effect of price controls on economic efficiency in this context.

When the Covid-19 Pandemic Broke Out, the Price of Face