What would be the economic consequences if prices were fixed by the government?
Explanation
For fig A:
(i) Excess supply will occur (Q\(_1\) Q\(_2\)).
(ii) There will be accumulated surpluses as SS>DD.
(iii) Perishable goods would get spoilt due to inadequate or lack of storage facilities.
(iv) In case of fixing the wage rate above the existing equilibrium wage rate, there will be unemployment resulting from excess supply of labour.
(v) It could fuel inflation.
(vi) Unemployment increases the dependency ratio on the economy.
for fig B:
(i) There will be excess demand of (Q\(_1\) Q\(_0\))
(ii) There will be hoarding of goods.
(iii) Rationing will occur because of shortage of goods.
(iv) Development of black marketing at higher price.
(v) Prices paid for goods do not reflect the relative values of goods and services.