Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumer surplus increases, and deadweight loss decreases.
B
Consumer surplus decreases, and deadweight loss increases.
C
Consumer surplus increases, and deadweight loss increases.
D
Consumer surplus remains unchanged, and deadweight loss increases.
Understanding the Answer
Let's break down why this is correct
Answer
When a price ceiling is set below the equilibrium price, it means that the maximum price that sellers can charge is lower than what they would normally charge in a free market. This leads to more consumers wanting to buy the product because it is cheaper, but at the same time, producers may not want to sell as much since they earn less money. As a result, there are fewer goods available than what people want to buy, creating a shortage. This situation can increase consumer surplus for those who can buy the product at the lower price, but it also causes deadweight loss because some potential transactions that could have happened at the higher price no longer occur. For example, if a popular toy is priced at $10 due to the ceiling instead of the $15 equilibrium price, many kids want it at $10, but stores might not stock enough because they can't make enough profit, leading to fewer toys available overall.
Detailed Explanation
When a price ceiling is set below the equilibrium price, more people can buy at a lower price. Other options are incorrect because This answer suggests that consumer surplus increases while deadweight loss decreases; This choice claims that consumer surplus decreases and deadweight loss increases.
Key Concepts
supply and demand curves
consumer surplus
Topic
Deadweight Loss in Pricing
Difficulty
medium level question
Cognitive Level
understand
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