Question about price control?

Price control:


A. creates excess demand that is self-correcting.


B. increases quantity demanded and decreases quantity supplied.


C. encourages people with less urgent needs to compete with people with more urgent needs.


D. B + C


E. A + C





I was thinking it was just C, but now I'm wondering if it isn't A + C.


Can somebody explain?Question about price control?
D. B + C





';A'; is false because price control in perfect model does not allow to initiate self-correction.





';B'; is true if price control sets price below market-clearing level (effective price ceiling).





';C'; is the way how shortage emerged from ';B'; is regulated.Question about price control?
I'll give you a couple hints... it definitely is not A. This is kind of a tricky question, but think of it this way. You own a business and your costs start to go up... what are you going to do... you raise your prices... then the government says you need to lower your price... people wouldn't have to control their purchasing of the product... so it would NOT be self correcting... so is is not true.





Now, imagine if cars cost 10 dollars.. those that NEEDED the cars probably couldn't get their hands on them because other people would say ';I'll buy a couple spares just in case';, and supply couldn't keep up with demand.





I don't want to just give you the answers, but I hope I helped you understand.