Question

When the government controls the price of a product, causing the market price to be above the free market equilibrium price, both producers and consumers gain. all producers gain. Correct some, but not all, sellers can find buyers for their goods. only consumers gain.

Answer 1

Government-controlled prices can lead to either surpluses or shortages in the market. While some producers may benefit from higher prices, consumers often suffer. Conversely, price ceilings intended to assist consumers can result in shortages and reduced quality.

Step-by-step explanation:

When the government controls the price of a product, causing the market price to be above the free market equilibrium price, it's known as a price floor. The effect of such a policy is often mixed. For instance, in the case of wheat in Europe, policies to maintain high prices for farmers means that the price is kept above the market equilibrium level. The outcome is a quantity supplied in excess of the quantity demanded, creating a surplus. Some producers may gain as they can sell at a higher price, but not all will find buyers for their excess goods. As for consumers, they have to deal with a rise in price. Equally, if the government enacts a price ceiling to keep prices low, a shortage can occur when quantity demanded exceeds quantity supplied.

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