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 creates market distortions that adversely affect the allocation of resources. This can result in inefficient production and distribution of goods and services, as well as reduce incentives for producers to innovate and improve their products. While fixed prices may provide some stability and predictability in the short-term, the long-term costs of reduced efficiency and productivity outweigh these benefits. The improvement in equity may be desirable, but it cannot justify the negative impact on resource allocation.

When the Government Prevents Prices from Adjusting Naturally to Supply