If a market is initially operating competitively and then the government imposes a price floor above the equilibrium price,
A)there will be more resources will be devoted to the production of this product
B)quantity demanded will rise
C)producer surplus will fall in the short run
D)imposition of the floor is probably a positive-sum game
E)consumer surplus will fall

Question

Quizplus · Accepted Answer

If the government imposes a price floor above the equilibrium price, it means that the price that consumers have to pay for the product is higher than the price they would have paid in a free market. This will lead to a decrease in demand for the product, which will result in a surplus of the product. This surplus will then cause the price to fall back down to the equilibrium price. However, in the short run, the consumers will have to pay more for the product, which will result in a decrease in consumer surplus. Therefore, E is the correct choice.

If a Market Is Initially Operating Competitively and Then the Government