Market Distortion
Market distortion refers to any interference or irregularity in financial markets that causes prices to deviate from their true value or equilibrium. This can be caused by factors such as government intervention, regulatory policies, monopolies, or market manipulation. Distortions can lead to inefficiencies in price discovery, misallocation of resources, and suboptimal economic outcomes. Examples include price controls, subsidies, or insider trading.
Example
A government imposes price controls on essential goods, creating a market distortion where supply and demand are no longer aligned, leading to shortages.
Key points
• Any interference in financial markets that causes prices to deviate from true value.
• Can be caused by government intervention, monopolies, or manipulation.
• Leads to inefficiencies in price discovery and misallocation of resources.
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