When the government prevents prices from adjusting naturally to supply and demand, it:

• A. guarantees that all consumers can purchase goods at lower prices
• B. eliminates the possibility of black markets
• C. may create shortages or surpluses in the market
• D. always ensures market equilibrium is achieved

Answer: (C)

Verified step by step guidance

1. Understand that when the government intervenes in the market by preventing prices from adjusting naturally, it often does so through price controls such as price ceilings (maximum prices) or price floors (minimum prices).
2. Recall that a price ceiling set below the equilibrium price tends to create a shortage because the quantity demanded exceeds the quantity supplied at that price, while a price floor set above equilibrium tends to create a surplus because quantity supplied exceeds quantity demanded.
3. Recognize that such interventions disrupt the natural market equilibrium where supply equals demand, potentially leading to inefficiencies like shortages or surpluses rather than guaranteeing that all consumers can buy goods at lower prices or that black markets are eliminated.
4. Analyze why price controls do not always ensure market equilibrium: equilibrium is achieved when the market price balances supply and demand, but fixed prices prevent this adjustment.
5. Conclude that the correct understanding is that government price controls may create shortages or surpluses, depending on whether the control is a ceiling or a floor, rather than guaranteeing lower prices for all consumers or eliminating black markets.