The Shortages That Result from Imposing Price Controls

question 69

Multiple Choice

The shortages that result from imposing price controls:

• A) are rarely recognized by the public as a result of the price controls themselves.
• B) typically lead the public to lobby politicians to repeal the price controls.
• C) only last for a short while until markets can adjust to the new lower prices.
• D) create higher prices.

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Definitions:

Hedger

An investor or trader who enters into contracts to protect against future price fluctuations of an asset.

Call Option

A Call Option is a financial contract that gives the holder the right, but not the obligation, to buy a specific amount of an asset at a predetermined price within a specified period.

Put Option

A financial deal that provides the holder the privilege, yet not the compulsion, to offload a specified quantity of a basic asset at a fixed rate within an established timeframe.

Underlying Asset

The financial instrument (such as stocks, bonds, commodities) upon which derivatives and other financial instruments are based.