Assume a market has an equilibrium price of $8. If the market price is set at $7: I. Total surplus rises if the change in quantity is large enough.
II) Consumer surplus rises for some because of the decreased price.
III) Consumer surplus decreases for some because fewer transactions are taking place.

Question

Quizplus · Accepted Answer

If the market price is set at $7, there will be excess demand (quantity demanded will be greater than quantity supplied). This means that fewer transactions will take place, causing a decrease in consumer surplus for some individuals. However, because the price has decreased, some consumers will also experience an increase in consumer surplus. Overall, the total surplus will decrease because the decrease in consumer surplus for some will not be enough to offset the loss in producer surplus. Therefore, statements II and III are true, but statement I is not necessarily true, as it depends on the magnitude of the change in quantity.

Assume a Market Has an Equilibrium Price of $8