What happens when the government prevents prices from adjusting naturally to supply and demand?

Question

Quizplus · Accepted Answer

When the government prevents prices from adjusting naturally to supply and demand, it can lead to misallocation of resources as price signals are distorted. This can result in excess supply or demand of certain goods, which can lead to surpluses or shortages. This can also lead to market inefficiencies and reduce economic growth. Therefore, preventing prices from adjusting naturally adversely affects the allocation of resources.

What Happens When the Government Prevents Prices from Adjusting Naturally