Legal limits on prices will tend to cause misallocation of resources because
A)production (or opportunity) cost no longer corresponds to market price.
B)people are unable to determine their preferences at the high or low price.
C)producers no longer have incentive to be profitable.
D)consumers no longer have incentive to spend their income efficiently.
E)All of the above are correct.

Question

Quizplus · Accepted Answer

When legal limits are placed on prices, production cost no longer corresponds to market price, which leads to misallocation of resources. This is because producers may no longer find it profitable to produce goods and allocate resources efficiently due to price constraints. As a result, resources may be used inefficiently and goods may be underproduced or overproduced.

Legal Limits on Prices Will Tend to Cause Misallocation of Resources