When a binding price ceiling is in place in a competitive market, the quantity t

Question

When a binding price ceiling is in place in a competitive market, the quantity traded is determined by the quantity supplied at the price ceiling. If the price ceiling was made more strict by lowering maximum legal price, which of the following would always be predicted by a model of supply and demand?

a decrease in consumer surplus

an increase in consumer surplus

a decrease in producer surplus

an increase in total surplus

a decrease in consumer surplus

an increase in consumer surplus

a decrease in producer surplus

an increase in total surplus

Explanation / Answer

Answer: If the ceiling is less than the equilibrium price, the automatically consumer will be at profit since now he will be able buy at lower rate. On other hand, some of surplus of producer shall be transferred to consumer and some would be in form of deadweight loss. Following options are correct:

AN increase in consumer surplus

A decrease in producer surplus

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.