Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A subsidy given to farmers to increase agricultural production.
B
A price ceiling imposed on essential goods to keep them affordable.
C
A tax levied on luxury goods to reduce consumption.
D
Government regulations that enhance competition among businesses.
Understanding the Answer
Let's break down why this is correct
Answer
A government intervention that can lead to deadweight loss occurs when a price ceiling is set below the market equilibrium price. For example, imagine a city that decides to cap the rent for apartments to make housing more affordable. This cap might make it cheaper for some people to rent, but it also discourages landlords from renting out their properties because they earn less money. As a result, fewer apartments are available, leading to a shortage. This situation creates inefficiencies in the market, as some people who want to rent cannot find a place, resulting in a loss of potential economic transactions that would have occurred at the higher equilibrium price.
Detailed Explanation
A price ceiling makes goods cheaper, but it can cause shortages. Other options are incorrect because Some think subsidies always help; Many believe taxes always reduce consumption effectively.
Key Concepts
Government intervention
Deadweight loss
Topic
Government Intervention and Market Efficiency
Difficulty
medium level question
Cognitive Level
understand
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