Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases consumer surplus by allowing consumers to buy more at a lower price.
B
It decreases consumer surplus by creating a shortage of goods.
C
It has no effect on consumer surplus as demand remains constant.
D
It increases consumer surplus by eliminating market intervention.
Understanding the Answer
Let's break down why this is correct
Answer
A government-imposed price ceiling is a maximum price that can be charged for a good or service, which is typically set below the market equilibrium price. When this happens, the price of the good decreases, making it more affordable for consumers. According to the law of demand, as the price goes down, the quantity demanded usually goes up, which means more people want to buy the product. This increase in demand can lead to a higher consumer surplus, which is the difference between what consumers are willing to pay and what they actually pay. For example, if a popular toy is usually sold for $20 but the government sets a price ceiling of $15, more families can buy it at the lower price, increasing their overall satisfaction and creating a larger consumer surplus.
Detailed Explanation
A price ceiling makes goods cheaper, but it can lead to fewer goods available. Other options are incorrect because This answer thinks that lower prices always mean more goods; This answer assumes that demand won't change.
Key Concepts
law of demand
consumer surplus
market intervention
Topic
Supply and Demand Analysis
Difficulty
hard level question
Cognitive Level
understand
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