Under a binding price ceiling, what does the change in producer surplus represent?
A) The gain in surplus for those sellers who are still willing to supply the product at the lower price.
B) The loss in surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price.
C) The gain in surplus associated with the excess demand created by the price ceiling policy.
D) Both A and B are correct.
E) Both A and C are correct.

Question

Quizplus · Accepted Answer

The change in producer surplus represents the loss of surplus associated with those units that used to be produced at the higher price but are no longer produced at the lower price. This is because the binding price ceiling prevents producers from selling their goods at the market-clearing price, leading to a decrease in the quantity supplied and a reduction in producer surplus. Choices A and C are incorrect because the gain in surplus for willing sellers and the excess demand created by the price ceiling are not reflected in the change in producer surplus.

Under a Binding Price Ceiling, What Does the Change in Producer