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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

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BuyFindarrow_forward

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
Chapter 6, Problem 4QR
Textbook Problem
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Explain why economists usually oppose controls prices.

To determine
The reason why economists oppose price controls.

Explanation of Solution

The price controls are the government controlled price mechanisms. The maximum and the minimum prices will be set under the price controls by the government in order to prevent the overpricing and under pricing in the market to protect the consumer as well as producer interests. The price control mechanisms are known as the price ceilings and price floor.

The price floor is the minimum price that can be charged for the product in the market. This is to prevent the prices from going too low and make loss to the producers and service providers. The price ceiling is the maximum limit price that can be charged for a good or service in the market. This is to prevent the prices from going too much higher and prevent the exploitation of the consumers.

When the government introduces the price floor above the equilibrium price, it will reduce the consumption because the consumers have to pay a higher price for the commodity. As a result of higher price than the equilibrium price and because of the price floor, the consumption will reduce...

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