Refer to the accompanying figure. Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires cheese to be sold for less than the equilibrium price, then, relative to before the price controls, total consumer surplus in the market:
A)would increase because consumers would be able to purchase the same quantity of cheese at a lower price.
B)would increase because consumers would be able to purchase more cheese at a lower price.
C)could either increase or decrease.
D)would decrease because of the reduction in equilibrium price.

Question

Refer to the accompanying figure. Suppose a consumer protection group convinces the government to impose price controls in this market. If the government requires cheese to be sold for less than the equilibrium price, then, relative to before the price controls, total consumer surplus in the market: 
A)would increase because consumers would be able to purchase the same quantity of cheese at a lower price. 
B)would increase because consumers would be able to purchase more cheese at a lower price. 
C)could either increase or decrease. 
D)would decrease because of the reduction in equilibrium price.

Quizplus · Accepted Answer

If a price control were set below the equilibrium price, then this would lower the price that consumers paid for each pound of cheese, but, at a lower price, fewer pounds of cheese would be sold due to the reduction in quantity supplied. Thus, consumer surplus could either increase or decrease.

Refer to the Accompanying Figure