Assume that your state government has placed a price ceiling of $0.20 per kilowatt hour on electricity. The equilibrium price per kilowatt hour for electricity is $0.25. The government's action will result in

Question

Quizplus · Accepted Answer

A price ceiling set below the equilibrium price (in this case, at $0.20 when the equilibrium is $0.25) leads to a shortage, not a surplus, and reduces the overall efficiency of the market, creating a deadweight loss. Producer surplus decreases because producers are receiving less for their electricity than they would at equilibrium. The price cannot legally increase to the equilibrium price of $0.25 due to the imposed price ceiling.

Assume That Your State Government Has Placed a Price Ceiling