Question

Suppose a market with a price control causes a surplus. In three or four sentences, explain why this market is inefficient. Mention the definition of inefficient.

Answer 1

The market most likely has it's prices too high. Having prices too high will cause a surplus because not enough people will buy the items. the market is inefficient because it is wasting food that has not been sold and is not operating at maximum productivity. The market needs to reduce it's prices in order to operate more efficiently. I hope this helped.

Answer 2

If a price control causes a surplus the market will become inefficient because:

1. The producer will manufacture the same amount of goods as he did previously but the surplus will increase its cost and the goods will not be sold in the market, it will result in the wastage of goods and resources if they are kept in one place for a long time.

2. The surplus will cause an equilibrium in the market in terms of supply and demand.

3. If the goods are not sold in the market for a long time, it will stop the circulation of money.

Meaning of Inefficiency :

It means the lack of ability to achieve a certain goal without wasting energy, resources and time.