When the government prevents prices from adjusting naturally to supply and demand,
A)it equates the amount buyers want to buy with the amount sellers want to sell.
B)it adversely affects the allocation of resources.
C)it improves equality and efficiency.
D)it improves efficiency but reduces equality.

Question

Quizplus · Accepted Answer

When the government prevents prices from adjusting naturally to supply and demand, it creates a situation where some buyers and sellers are not able to participate in the market, thus leading to an inefficient allocation of resources. This is because prices do not reflect the true willingness of buyers and sellers to participate in the market. Therefore, choice (B) is the best answer.

When the Government Prevents Prices from Adjusting Naturally to Supply