Suppose the government decides to create a ceiling on the price of gasoline, which of the following is not likely to be true under the described circumstances?
A)The ceiling will have no effect if the ceiling is above the equilibrium market price.
B)Producer surplus will likely increase if the ceiling is below the equilibrium market price.
C)Producer surplus will be lower with a binding ceiling (below the initial market equilibrium price).
D)The ceiling will lead to shortages if the ceiling is below the initial market price.

Question

Quizplus · Accepted Answer

A price ceiling set below the equilibrium market price typically results in a decrease in producer surplus because suppliers are unable to sell their product at the higher equilibrium price, leading to lower revenues.

Suppose the Government Decides to Create a Ceiling on the Price