If a price above the equilibrium price is imposed in a perfectly competitive market,
A) any price reduction will reduce total economic surplus.
B) any price increase will increase total economic surplus.
C) leaving the price at this value will increase total economic surplus.
D) reducing the price to the equilibrium price will increase total economic surplus.
E) reducing the price to zero will increase total economic surplus.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the equilibrium price is where the quantity demanded equals the quantity supplied, maximizing total economic surplus. If a price above the equilibrium price is imposed, there will be excess supply (quantity supplied will be greater than quantity demanded), leading to a surplus of goods and a decrease in total economic surplus. To restore equilibrium, the price must be reduced to the equilibrium level, which will increase total economic surplus. Therefore, reducing the price to the equilibrium price will increase total economic surplus.

If a Price Above the Equilibrium Price Is Imposed in a Perfectly