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It would have been more apt, if it is reworded as How does the government regulation affect market economy. In a controlled economy, government decides what its economy should be and hence has no relevance.In a market economy, the fundamental aspect of Choice and freedom... This enables production as per market demand and also creation of new markets for products. Government regulations affect the choice and freedom and hence may affect the market dynamics and economy.
If the price floor is above market equilibrium then companies are forced to sell at that price. This means the market's quantity supplied and quantity demanded will not equal each other, resulting in a surplus. If the price floor is lower than market equilibrium then the government imposed regulation is non-binding, resulting in no change to the market.
cause in real life market never remains at equilibrium, many factors affect market price and quantity
Regulation
In a competitive market free of government regulation, the price of a product will continue to adjust. The only time it will stop is when demand is equal to the quantity supplied.
One essential government role in a market economy is regulation. This allows for competition without monopoly.
Ensure competition and protect consumers
Market equilibrium is this situation when market demand is equal of market supply
if there is equilibrium in the market and the govt. fixes the price then there would be the dead weight loss.
A popular model is the free market, where the market has no government intervention or regulation.
lowering the costs of production of a good (novanet)
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