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Why does the government attempt to control prices any way in a number of markets?
Why does the government attempt to control prices any way in a number of markets?
Expert Solution
The government attempts to control prices in a number of markets because of the general equilibrium effect. A general equilibrium refers to an equilibrium where multiple markets clear simultaneously. Hence, each market is linked - that is, when the price of good in one market changes, it also affect the prices of other goods in other markets. Therefore, if a government attempt to change price in one market, it inadvertently would also change prices in other market. Therefore, to achieve price controls, the government must attempt to control prices in a number of markets.
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