📚 Learning Guide
Graphing Deadweight Loss
easy

In a market with a price ceiling, how does consumer surplus change compared to a market without intervention?

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Learning Path
Learning Path

Question & Answer
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Choose the Best Answer

A

Consumer surplus decreases

B

Consumer surplus remains the same

C

Consumer surplus increases

D

Consumer surplus becomes zero

Understanding the Answer

Let's break down why this is correct

Answer

In a market with a price ceiling, the maximum price that can be charged for a good is set lower than the market equilibrium price. This usually leads to an increase in consumer surplus because consumers can buy the product at a lower price than they would have without the ceiling. However, the lower price can also cause shortages, as producers may not want to supply enough of the product at that price, which means not everyone who wants to buy it can get it. For example, if a popular toy is normally sold for $20 but a price ceiling sets it at $10, more people can afford it, increasing consumer surplus, but stores might run out of stock quickly. Overall, while some consumers benefit from lower prices, the market becomes less efficient, leading to a loss in total welfare, often represented in graphs as deadweight loss.

Detailed Explanation

When a price ceiling is set, prices are kept low. Other options are incorrect because Some might think that consumer surplus stays the same; It's a common mistake to think that lower prices always help consumers more.

Key Concepts

consumer surplus
Topic

Graphing Deadweight Loss

Difficulty

easy level question

Cognitive Level

understand

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