Price controls cause resources to be misallocated by:
A) distorting the signals of suppliers' willingness to supply and eliminating the incentives for demanders to pay.
B) distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply.
C) distorting the incentives for suppliers to supply and eliminating the signals of demanders' willingness to pay.
D) distorting the incentives for demanders to pay and eliminating the signals of suppliers' willingness to supply.

Question

Quizplus · Accepted Answer

Price controls, such as price ceilings, limit the price that can be charged for a good or service. This distorts the signals of demanders' willingness to pay, as the price no longer reflects the true value they place on the good or service. Additionally, price controls eliminate the incentives for suppliers to supply because they cannot charge the market price to cover their costs and make a profit. As a result, resources are misallocated because goods and services that are in high demand are not being supplied enough, and those that are less in demand may be supplied too much.

Price Controls Cause Resources to Be Misallocated By