Assume a market has an equilibrium price of $4. If the market price is set at $8, which of the following statements is true?
A) Some surplus is transferred from consumers to producers, but total surplus falls.
B) All surplus is transferred from consumers to producers, and total surplus stays the same.
C) Some surplus is transferred from producers to consumers, but total surplus falls.
D) Some surplus is transferred from consumers to producers, causing total surplus to increase.

Question

Quizplus · Accepted Answer

When the market price is set above the equilibrium price, it results in a decrease in consumer surplus because fewer consumers are willing or able to buy the product at the higher price. This can lead to an increase in producer surplus because producers are selling their product at a higher price, but the overall effect is a decrease in total surplus due to the creation of deadweight loss from inefficiently low quantity being traded.

Assume a Market Has an Equilibrium Price of $4