In competitive markets, binding price floors and binding price ceilings lead to
A) a reduction in deadweight loss.
B) an overall increase in economic surplus, and therefore to market efficiency.
C) a maximization of economic surplus.
D) fairer prices for consumers and producers, and therefore are better for society as a whole.
E) an overall reduction in economic surplus, and therefore to market inefficiency.

Question

Quizplus · Accepted Answer

Binding price floors and ceilings create a situation where the price is artificially higher or lower than the equilibrium price, leading to a reduction in both consumer and producer surplus, and therefore a reduction in total economic surplus. This results in market inefficiency.

In Competitive Markets, Binding Price Floors and Binding Price Ceilings