-Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What has happened to the consumers' surplus as a result of the imposition of the price floor? A) consumers' surplus has gone down by (area 2 + 4) B) consumers' surplus has risen by (area 2 + 4) C) consumers' surplus has gone down by (area 3 - area 5) D) consumers' surplus has risen by (area 2 + 3)

Question

Quizplus · Accepted Answer

A price floor set above the equilibrium price (as indicated by P_F) would lead to a decrease in consumer surplus because it raises the price above what it would otherwise be in a free market, reducing the quantity of goods that consumers are willing and able to purchase at that higher price. The areas typically represent the loss in consumer surplus due to the higher price and reduced consumption.