What happens when the government prevents prices from adjusting naturally to supply and demand?
A) It stabilizes the economy by reducing market uncertainties.
B) It adversely affects the allocation of resources.
C) There is an improvement in equity that justifies the reduction in efficiency.
D) There is an improvement in efficiency that justifies the reduction in equity.

Question

Quizplus · Accepted Answer

When the government prevents prices from adjusting naturally to supply and demand, it distorts the market signals which affects the efficient allocation of resources. This can lead to shortages or surpluses of goods and services, and ultimately result in a less efficient economy.

What Happens When the Government Prevents Prices from Adjusting Naturally