Does a government imposed price control provide an efficient market Term Paper

Does a government imposed price control provide an efficient market - Term Paper Example This effect is long-term as the elasticity of supply is high and the availability of the product is being rationed by price, eventually black market arises to compensate this shortage. This is a clear indication that the government intervention has reduced the efficiency of the market and created new market failure characteristics like the emergence of a black market where goods and services evade tax through smuggling in addition to violation of several other rules of the trade (Mises, 197-248). On the other hand, price floors raise the equilibrium price for they are set at minimum. These price floors are inclusive of reduced wages and agricultural marketing boards. On condition that the price floors bind, then they will definitely decrease the amount of goods in demand and increase the quantity which is being supplied. Eventually this will create a surplus in the market and thus lower the prices below the equilibrium price. Economists argue that lowered wage laws may subsequently result to increased levels of unemployment and this phenomenon mostly affects the youth as business units often offer high wages (Riesman, 35-78). A free market is a market where the equilibrium price is controlled by forces of demand and supply. When a tax is imposed on such a market; there emerges a difference between supply and demand prices and the equilibrium is disrupted and this results to a tax wedge. When a tax has been imposed on any transaction in then market, the resulting difference between the demand and the supply price is commonly referred to as the tax wedge. Taxes are mandatory payments to the government from the society and they have substantial influence on the normal market trends; basically of the buying and the selling price difference (Mises, 327-361). In a competitive market which is devoid of these price regulations from the government, the equilibrium price is