A price floor that is higher than the equilibrium market price results in
A)a decrease in consumer surplus.
B)a decrease in producer surplus but an increase in consumer surplus.
C)a gain in both consumer surplus and producer surplus.
D)Pareto efficiency.
E)a decrease in deadweight loss.

Question

Quizplus · Accepted Answer

A price floor that is higher than the equilibrium market price imposes a minimum price stifle which restricts the quantity demanded by consumers. This results in a surplus of the product, which leads to a decrease in consumer surplus. Additionally, the producers benefit from the minimum price, but only at the cost of a decrease in producer surplus. Thus, it is not Pareto-efficient, and the deadweight loss increases.

A Price Floor That Is Higher Than the Equilibrium Market