The prices of several essential goods in Agraria almost doubled ...

[formula1]

The prices of several essential goods in Agraria almost doubled over the last decade. In order to satisfy the voters, the government of Agraria introduced price controls. What is likely to happen after the introduction of these price controls?
 
  What will be an ideal response?

Question 2

If an economy is represented by a point inside its production possibilities curve
 
  A) it cannot produce more of one product unless it stops producing the other product entirely.
  B) it cannot possibly produce more of one product, even if it produces less of another product.
  C) it can produce more of one product only if it produces less of another product.
  D) it can produce more of one product even if it does not produce less of another product.

[Kingjoffery]

Answer to Question 1

Inflation generates voter anger, and politicians sometimes respond by advancing economically destructive schemes, especially price controls. In most of these cases, the policy cure is worse than the disease. Price controls cause problems like long lines and supply disruptions. In addition, price controls are partially undone when some of those consumers who are lucky enough to obtain the good at the official capped price, resell it at a higher price in the underground economy. Hence, price controls create an inefficient incentive for consumers who don't want to consume the good to buy it anyway, just so they can resell it to someone else at a higher price. This is what is most likely to happen in Agraria.

Answer to Question 2

D