Question 2 Not yet answered Points out of 20 P Rag question

Question 2 Not yet answered Points out of 20 P Rag question Explain why price controls may actually end up making consumers worse off in areas that have experienced natural disasters such as hurricanes.

Solution

ANSWER:

Price control are always bad because if on a good , there is a price control then the incentive to bring more of that good for the sellers is lost as they can\'t sell that good for more amount and therefore it leads to scarcity of that good and since there is a disaster like hurricane , in which the goods are already scarce, it doubles up the problem as consumers now stand in long lines to get that good as availability of that good is scarce and ultimately , this leads to a lot of frustrations and the government decision backfires and hurts the consumers most.

This is a simple supply and demand thing as incentive to earn more is not there for the suppliers , although demand being greater but due to price control , the suppliers incentive is gone and hence the quantity supplied becomes scarcer then earlier and there is a mismatch between supply and demand and this continues till the government decides to revoke the price control on that good and hence consumers will always be worse off as in order to buy that good , they have to wait in lines for 3 to 4 hours which makes there productivity lesser and lesser and ultimately they are worse off before the price control was imposed.