The prices of several essential goods in Agraria almost doubled over the last decade. In order to satisfy the voters, the government of Agraria introduced price controls. What is likely to happen after the introduction of these price controls?
What will be an ideal response?
Inflation generates voter anger, and politicians sometimes respond by advancing economically destructive schemes, especially price controls. In most of these cases, the policy cure is worse than the disease. Price controls cause problems like long lines and supply disruptions. In addition, price controls are partially undone when some of those consumers who are lucky enough to obtain the good at the official capped price, resell it at a higher price in the underground economy. Hence, price controls create an inefficient incentive for consumers who don't want to consume the good to buy it anyway, just so they can resell it to someone else at a higher price. This is what is most likely to happen in Agraria.
You might also like to view...
Induced expenditure includes
A) consumption expenditure, government expenditure on goods and services, and imports. B) investment, consumption expenditures, and exports. C) consumption expenditure and exports. D) consumption expenditure and government expenditure on goods and services. E) consumption expenditure and imports.
China has developed a comparative advantage in the production of clothing. The source of this comparative advantage is
A) investment in capital used to produce clothing. B) a large supply of natural resources. C) a large supply of unskilled workers and relatively little capital. D) superior process technology.
Microeconomists usually assume that people are motivated by
A. selfishness. B. material self-interest. C. altruism. D. property rights.
The basic purpose of financial markets is:
A. sell commodities to firms as inputs. B. match people who want money to spend now with people who want to save their money for later. C. buy commodities from firms and the government to sell to the public. D. buy and sell different currencies in order to make a profit.