Government's intervention in the form of price controls leads to disequilibrium trading. Maximum price fixation causes excess demand whereas minimum price fixation causes excess supply. Under such disequilibrium trading, purchase and sale of output is less than it would have been under free market operation. Excess demand means lesser quantity available and thus many buyers remain unsatisfied. Excess supply means people have more to sell thus sellers cannot sell all that they want to sell at the given price. Both the cases have adverse long – term impact on the economy.
SUBMIT ASSIGNMENT NOW!