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Using demand and supply analysis explain why the govt might wish to control the price of rice below the market equilibrium price and economic consequences of such a policy?
Briancongo
Keeping the price of rice below the market equilibrium is to enable those whom previously was unable to afford now able to consume the good. If left to market forces, price of rice will be high as rice is considered a necessity in certain part of the world and faces an inelastic demand. Hence, the producer can jack up the price without worrying about the less than proportionate fall in quantity demanded. However, this creates a negative impact on the consumers as the poor now are unable to afford the good.
Some economic consequences is that there will be a shortage of good as price is low, demand outweigh the supply and hence, it could lead to black market forming and sorts.
Hope this help! :)
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∙ 14y ago
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