After a price floor is imposed,the total economic surplus in that market will
A) be reallocated from producers to consumers.
B) remain unchanged.
C) increase.
D) decrease.
E) become negative.

Question

Quizplus · Accepted Answer

When a price floor is imposed, the price of the good or service is not allowed to fall below a certain level. This leads to a situation where the quantity supplied exceeds the quantity demanded, resulting in a surplus. This surplus reduces the economic surplus in the market, which is the sum of consumer and producer surplus. In this scenario, the producer surplus may increase due to the higher prices, but the decrease in consumer surplus due to the surplus in the market will more than offset the increase in producer surplus, resulting in a decrease in the total economic surplus. Therefore, the correct answer is D, decrease.

After a Price Floor Is Imposed,the Total Economic Surplus in That