Price Distortion

Price distortion occurs when the true market price of a good or service is altered due to external factors, such as government interventions like subsidies or taxes, market monopolies, or misinformation. These factors can lead to prices that don't accurately reflect supply and demand, causing inefficiencies in the market. For example, a subsidy might make a product cheaper than its actual production cost, encouraging overconsumption and misallocating resources. As a result, consumers might not make informed choices, and producers may not respond appropriately to real market needs, ultimately impacting overall economic health.