A price ceiling causes
A) producer surplus to fall.
B) total economic surplus to rise.
C) quantity supplied to exceed quantity demanded.
D) quantity supplied to increase.
E) demand to increase.

Question

Quizplus · Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a good or service, which is typically set below the market equilibrium price. Because suppliers cannot charge the higher market price, they receive less revenue and thus their producer surplus falls. Additionally, the price ceiling creates a shortage of the good or service as quantity demanded exceeds quantity supplied. This leads to allocative inefficiency as goods go to those who are willing and able to pay the lower price rather than those who value it more highly, causing deadweight loss. Overall, a price ceiling leads to a reduction in economic welfare.

A Price Ceiling Causes