Why do government leaders impose price controls?
a. They are trying to promote the formation of black markets.
b. They are trying to ensure that the market reaches equilibrium.
c. They are trying to ensure that all consumers are able to purchase a specific product.
d. They are trying to ensure that a social goal is satisfied.
e. They are trying to increase the demand curve.
The correct answer and explanation is:
The correct answer is c. They are trying to ensure that all consumers are able to purchase a specific product.
Price controls, such as price ceilings and price floors, are typically implemented by governments to address issues related to affordability and availability of essential goods and services. A price ceiling is the maximum price that can be charged for a product or service. Governments often impose price ceilings on basic goods, like food or fuel, to make sure that these products remain affordable for all consumers, especially those with lower incomes. A common example is rent control, where the government sets a maximum rent to prevent landlords from charging excessively high prices in markets with a shortage of rental units.
Price floors, on the other hand, set a minimum price for goods or services, such as minimum wage laws. This ensures that producers or workers earn a fair price for their goods or labor. Price floors are designed to prevent prices from falling too low, which could harm the producers’ ability to stay in business or support a living wage for workers.
Governments may also impose price controls to achieve social goals, like reducing inequality, protecting consumers from exploitation, or ensuring the availability of essential products during crises, like wars or natural disasters. However, price controls can also lead to unintended consequences. For example, price ceilings can lead to shortages, as suppliers may be less willing to produce or sell at lower prices, or they may turn to black markets to charge higher prices. Similarly, price floors can create surpluses if consumers are unwilling to pay the higher minimum prices set by the government.
In summary, the main reason for imposing price controls is often to ensure that all consumers can afford essential goods and services, particularly in markets where demand exceeds supply.