📚 Learning Guide
Price Controls and Market Outcomes
hard

What is a potential unintended consequence of government-imposed price controls in a free market?

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Learning Path
Learning Path

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1
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2
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3
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4
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Choose the Best Answer

A

Increased supply of goods

B

Shortages of essential products

C

Improved product quality

D

Decreased consumer demand

Understanding the Answer

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Answer

A potential unintended consequence of government-imposed price controls in a free market is that they can lead to shortages of goods. When the government sets a price that is too low, it can make products more affordable for consumers, but it may also discourage producers from making enough of those products. For example, if the government caps the price of bread to keep it cheap, bakers might not find it profitable to produce bread, leading to fewer loaves being available in stores. As a result, consumers may find it hard to buy bread, even though the price is low. This shows how price controls can create problems by disrupting the natural balance of supply and demand in the market.

Detailed Explanation

When the government sets a price too low, sellers may not want to sell. Other options are incorrect because Some might think lower prices mean more goods; People may believe that lower prices lead to better quality.

Key Concepts

shortages
government intervention
unintended consequences.
Topic

Price Controls and Market Outcomes

Difficulty

hard level question

Cognitive Level

understand

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