Question

Price controls such as price floors and price ceilings tend to make markets more efficient. True False

Answer 1

FALSE. Price controls such as price floors and price ceilings do not tend to make markets more efficient. Rather, search price controls distort the market incentives of both the buyers and sellers. Price floors lead to over production of good and service and the quantity produced is above the efficient quantity. Price ceiling leads to underproduction of good and service and the quantity produced is well below the efficient quantity. It is this distortion which leads to deadweight loss in the market. Presence of Dead weight loss makes market inefficient. Hence, it is false that price controls such as price floors and price ceilings tend to make markets more efficient.